RBI Liberalises ECB: Wider Access, Greater Flexibility, and New Guardrails

• Author(s): Dipak Rao, Nishita Arora
• Date: 12-Aug-2026
• Post in: Corporate & Commercial

The RBI has amended the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (the Regulations), by Gazette Notification dated February 9, 2026 (the Amendment), widening access to External Commercial Borrowings (ECBs) while layering in fresh compliance checks.

Liberalised Features

• Wider borrower pool: The eligible borrower base has been expanded to include Indian non-individual entities incorporated or registered under a Central or State legislation and permitted under its governing statute may now raise ECB, including entities under restructuring or CIRP (where the plan permits) and those facing pending FEMA investigation, adjudication or appeal action (subject to disclosure in Form ECB 1). Borrowing from a related party (as defined under the Companies Act, 2013) to be at arm’s length.

This may enable eligible Indian entities, including LLPs, that do not have foreign investment to access ECB, subject to compliance with the revised framework.

• Broader Recognised Lender Base – person resident outside India, offshore branches of RBI-regulated lenders, and financial institutions or its branches set up in an International Financial Services Centre.

The recognised lender definition has been broadened to include persons resident outside India, which can include individuals, and group companies of Indian entities, subject to the conditions under FEMA and the ECB framework.

• Borrowing currency: Denominated in foreign currency (FCY) or Indian Rupees (INR); currency can be changed from one FCY to another FCY, FCY to INR, or INR to FCY, with the caveat that the liability of the conversion does not exceed the amount calculated at the exchange rate prevailing on the agreement date.
• Higher ceilings: Borrowers may raise ECB up to the higher of outstanding ECB up to USD 1 billion or total outstanding borrowing (external plus domestic debt) up to 300% of net worth; no cap applies to entities regulated by financial sector regulators. The outstanding borrowing excludes non-fund-based credit and funds raised through issuance of securities mandatorily convertible to equity.

End-use Negative List:

1. Chit Funds;
2. Nidhi Companies;
3. Real-Estate Business and Construction of Farm Houses (exceptions include construction-development projects, Industrial Parks, Integrated Townships and SEZs, new industrial projects, modernisation and expansion of existing units, infrastructure sector, commercial or residential properties for borrower’s own use, real estate broking services.);
4. Agricultural and Animal Husbandry (except permitted specified activities such as floriculture, horticulture, cultivation of vegetables and mushrooms under controlled conditions, pisciculture, aquaculture, apiculture and services related to agro and allied sectors.)
5. Plantation (except plantations for tea, coffee, rubber, cardamom, palm oil trees, olive oil trees);
6. Trading in Transferable Development Rights;
7. Transacting in Listed/Unlisted Securities (except transactions by an Indian company for corporate actions such as M&A, Demerger, Amalgamation, acquisition under specified legislation);
8. Repayment of domestic INR loan availed for a restricted end use under the Regulations or classified as NPA as per applicable prudential norms.
9. On-lending for any purpose for which the Regulations prohibit borrowing and utilisation.

All other end-use including the exceptions mentioned above are eligible for ECBs. Thus, there appears to be no restriction on ECBs for working capital purposes within the relaxed negative list.

Costs:

• Prepayment charges and default/penal interest are no longer constrained by the erstwhile ECB all-in-cost ceiling. Instead, the ECB framework requires the overall cost of borrowing to be consistent with prevailing market conditions, with related-party borrowings also subject to the arm's-length principle.
• ECBs with average maturity period of less than three years, cost of borrowing to be compliant with cost ceiling specified for Trade Credit under the Regulations.
• For fixed rate loans, floating rate plus spread of corresponding swap not to exceed the ceiling.

Flexibility in Security:

1. ECB can be secured by charge over immoveable/movable/financial/intangible assets (including intellectual property rights) in favour of the off-shore lender or security trustee; and
2. Issue of guarantee as per FEMA in favour of lender or security trustee.

• Lighter reporting: Form ECB 2 moves from periodic to event-based filing.
• Refinancing: ECB for refinancing an existing ECB in part or full permitted subject to meeting minimum average maturity period applicable to the original borrowing.
• Conversion to non-debt instrument: ECB including those matured but unpaid convertible into non-debt instrument subject to conditions.

New Guardrails

• No refinancing shortcuts: ECB proceeds cannot be used to repay a domestic INR loan that funded a restricted end-use or has since turned NPA.
• Conditional M&A use: ECB deployed in securities transactions must serve strategic, long-term value creation — not short-term gain.
• ‘Untraceable borrower’ mechanism: persistent non-filing, unresponsiveness, and no activity at the registered address trigger mandatory reporting by banks to the RBI — and to the Directorate of Enforcement, where drawdown has already occurred.
• Maturity floor unchanged: minimum average maturity period remains three years (one-to-three-year exception retained for manufacturing borrowers, capped at USD 150 million outstanding).

Bottom Line

The Amendment expands the ambit of the ECB regime by enlarging the class of eligible borrowers, broadening the permissible lender base, enhancing borrowing thresholds, and providing greater flexibility in relation to end-use restrictions. Concurrently, it incorporates additional compliance safeguards and monitoring mechanisms to ensure stricter oversight over the deployment of proceeds and the identity and eligibility of participating borrowers.

For Indian corporates, the practical effect is a materially wider funding framework, particularly for working capital, general corporate purposes, group-company financing and strategic acquisitions, subject to the specific negative-list restrictions and other applicable laws.