The Reserve Bank of India (RBI), on October 3, 2025, released a draft framework proposing a significant overhaul of the External Commercial Borrowing (ECB) regulations^[1]. The Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025, now open for public consultation, aim to simplify the ECB regime, expand access to offshore funding, and align India’s external borrowing framework with global practices.

The proposed changes are wide-ranging, including relaxation of the eligible borrower and recognised lender criteria, relaxation of the end-use restrictions, and simplification of reporting and approval requirements. Among these, certain proposed amendments stand out for their potential to transform how India’s real estate sector can access foreign debt markets: the relaxation of end-use restrictions, the shift to market-linked pricing (by possibly removing the all-in-cost ceiling), and the rationalisation of the minimum average maturity period (MAMP).

Individually, each reform is significant but, taken together, they signal a regulatory re-rating of the real-estate sector that could finally link Indian real estate to global credit markets.

A Regime Historically closed for Real Estate Sector.

For decades, India’s ECB framework effectively excluded the “real estate sector” from offshore borrowing under the ECB route. Under the Master Direction on ECBs (2019 and subsequent updates)^[2], real estate activities are on the negative list, that is, ECB proceeds cannot generally be used for real estate business or for investment in land. The term “real estate activities” is defined broadly (e.g., buying, selling, or renting immovable property purely for profit) and regulators have historically taken a strict stance against funding speculative real estate transactions.

While a few limited exceptions are recognized under the current ECB framework: for instance, ECB funding has been permitted for infrastructure projects, large construction/development projects like industrial parks, integrated townships, and Special Economic Zones (SEZs), and purchase/long term leasing of industrial land as part of new project/modernisation or expansion of existing units; none of these were helping as the key commercial or retail or residential real estate projects could not have availed the same.

Two additional constraints made the ECB route commercially unviable even where it was technically permissible. First, rigid all-in-cost ceilings capped the total borrowing cost (interest plus fees) and limited the ability of offshore lenders to price credit risk appropriately, especially in a sector perceived as cyclical and high-risk. Second, the lengthy MAMP requirements, often five to ten years depending on end use, are ill-suited for a real estate project cycle that typically spans three to five years from acquisition to monetisation.

These combined barriers kept the sector largely reliant on rupee debt, often at higher effective costs with tighter liquidity and multiple end-use restrictions.

The Proposed Reforms – Aligning ECB Framework with Market Realities.

i.    End-use Liberalisation.

The centrepiece of the draft is the proposal to align ECB end-use restrictions with the FDI policy. The negative list would continue to prohibit use of ECBs for “real estate business or construction of farmhouses,” but with a clear carve-out for using the ECB proceeds in or towards the “activities or sectors permitted for FDI.”

As a result, real estate projects eligible for FDI such as construction and development of townships, housing and commercial projects would also become eligible to raise ECB, including, in our view, potentially for land acquisition for FDI-compliant projects.

This is a pragmatic recognition that genuine construction-linked activity is distinct from speculative real estate trading. For developers, this shift could be transformative as it opens access to offshore debt for land acquisition (where it forms part of an FDI-permitted project) and construction financing. By aligning the two investment regimes, the RBI is signalling that the sector has matured with reforms like RERA and the emergence of REITs having made the market more transparent and accountable.

ii.   Market-linked Pricing.

Equally important is the proposal to remove the fixed all-in-cost ceiling and replace it with a “cost of borrowing” aligned to prevailing market conditions, subject to the authorised dealer (AD) bank’s satisfaction that the pricing is reasonable.

This is a fundamental policy shift from a prescriptive mandate to a principle-based approach. Instead of regulating specific spreads (earlier capped at 450–550 bps over benchmark), the RBI is proposing to allow borrowers and lenders to negotiate rates that reflect project and borrower-specific risk.

For the real estate sector, where project risk and cash-flow profiles vary widely, this flexibility is critical. It allows high-quality developers with proven track records to borrow at competitive rates, while still enabling risk-adjusted pricing for more leveraged projects. As of now most of the developers have been raising high-yield private credit from select foreign financial institutions through listed or unlisted NCDs/ bonds.

It also broadens the potential lender base, as the international banks, credit funds, and institutional investors who were previously deterred by artificially low interest rates can now price India’s real estate risk on commercial terms. This reform, therefore, is not merely a regulatory adjustment but a commercial enablement that makes the route viable for both the lenders and the borrowers.

iii.  Rationalised Maturity Norms.

The third major proposal simplifies the MAMP requirement. Instead of multiple tiers depending on end-use, the draft prescribes a uniform three-year MAMP for most eligible borrowers, with a shorter 1–3-year window for manufacturing entities.

This simplification removes the misalignment that previously existed between borrowing tenors and project lifecycles. A three-year maturity aligns more naturally with the typical development and monetisation timeline of real estate projects.

Implications for Real Estate Financing and the Road Ahead

Viewed together, the proposed amendments amount to a structural re-opening of the offshore debt window for Indian developers.

i.    Broader capital access: Developers undertaking FDI-permitted projects will, for the first time in years, have the ability to tap wider offshore debt capital for construction and development activities.

ii.   Competitive funding costs: Removal of the all-in-cost ceiling allows pricing to be determined by credit quality and project fundamentals, potentially lowering effective funding costs for credible developers.

iii.  Better project-cash-flow alignment: A three-year MAMP fits the real estate lifecycle more naturally, reducing asset-liability mismatches and refinancing pressures.

iv.   Strengthened regulatory confidence: The move underscores the RBI’s growing comfort with the sector’s transparency and maturity, shaped by RERA, REITs, and a decade of institutionalisation.

v.    Continuing safeguards: Speculative and non-development activities still remain off-limits. AD banks will continue to act as the first line of supervision ensuring that pricing, maturity and end-use remain within the framework.

If implemented substantially in their current form, these reforms could mark a turning point for real-estate finance in India. Offshore debt which had become impractical due to regulatory restrictions could potentially evolve into a mainstream source of project funding, supplementing domestic bank and NBFC credit and other forms of offshore lending. In that sense, the RBI’s draft is not just a policy liberalisation but a statement of trust in the maturity of India’s markets, and in the ability of borrowers, lenders, and regulators to manage offshore capital prudently.

[1] Available at this link.

[2] Available at this link.