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The Reserve Bank of India ("RBI") has issued FEM
(Borrowing and Lending) (First Amendment) Regulations, 2026
("Amendment Regulations"). The Amendment Regulations
dated 9th February 2026 have now been notified in the official
gazette and have become effective.
The Amendment Regulations have liberalized the existing external
commercial borrowing ("ECB") framework. This alert
summarizes below the key changes brought by the Amendment
Regulations:
Particulars
Revised Position
Eligible borrower
Following are considered as eligible borrower who can raise
ECB:
Any person resident in India (other than an individual)
incorporated, established or registered under a Central or State
Act is an eligible borrower, if permitted under governing
regulations
An eligible borrower that is under a restructuring scheme or
corporate insolvency resolution process may raise ECB
Major change: By virtue of the revised position
now LLPs have been recognized as eligible borrowers for raising
ECBs
Recognized lender
The recognised lenders are:
A person resident outside India
A branch outside India of an entity whose lending business is
regulated by the Reserve Bank
A financial institution or a branch of a financial institution
set up in IFSC
Major change: The language 'a person resident
outside India' widens the scope of eligible lenders. Further,
the erstwhile stipulation that lender should be resident of FATF or
IOSCO compliant country no longer appears to apply.
End use restriction
ECB shall not be used for following purposes:
Chit funds
Nidhi Company
Real Estate Business and construction of farm house
Agricultural and animal husbandry
Plantation
Trading in transferable development rights
Transacting in listed/unlisted equity
Repayment of a domestic INR loan availed for restricted end-use
or classified as NPAon-lending for any of the purposes for which
funds cannot be borrowed and utilized in this regulation
Major change: The end-use restriction list is
revamped and liberalized. End use towards real estate business,
agriculture and plantation is allowed subject to certain
conditions.
Borrowing limit
An eligible borrower may raise ECB up to the higher of (a)
outstanding ECB up to USD 1 Billion; or (b)
total outstanding borrowing (external and domestic) up to
300 per cent of net worth as per the last audited
standalone balance sheet of the borrower
Major change: The erstwhile ECB limit of USD 750
Million has been significantly enhanced. No ECB limits applicable
to eligible borrowers regulated by financial sector regulators
Maturity
The minimum average maturity period (MAMP) for ECB is kept
uniform at 3 years. Borrower engaged in the manufacturing sector
can avail ECB with MAMP between 1 to 3 years
MAMP shall not be applicable in the following cases:
Conversion of ECB to a non debt instrument
Repayment by utilizing proceeds of FDI funds
Waiver of ECB by the lender
Waiver of ECB by the lender
Refinancing of ECB
Repayment of ECB, if required, for undertaking corporate
actions such as closure, merger, demerger, arrangement, acquisition
of control, amalgamation, resolution or liquidation by the lender
or the borrower
Major change: MAMP has been rationalized and kept
uniform for all categories of ECBs
Cost of borrowing
Now the cost of borrowing should be as per the prevailing
market conditions and arm's length for related parties
Major change: The concept of all-in-cost ceiling
is removed and replaced with cost of borrowing. Prepayment charges
or penal interest, if any, for default or breach of covenants shall
be in line with prevailing market conditions
Reporting
Borrowers are required to submit Form ECB 1 for obtaining
LRN
Revised Form ECB 1 is required for reporting any change in
previously reported ECB parameters
Form ECB 2' for reporting receipt of ECB proceeds and debt
servicing
Provision with respect to late submission fee is introduced in
regulations
Major change: Monthly reporting in Form ECB-2 has
been discontinued. Reporting is required only in the month in which
(i) ECB proceeds are received; and (ii) debt servicing is
undertaken.
Our Comments
The Amendment Regulations mark a significant move by the RBI to
change the extant ECB framework. The changes have liberalized the
ECB framework with standardization and simplification. The
Amendment Regulations brings modernized approach by easing several
restrictions faced earlier. ECB borrowings from group companies
must comply with the arm's length principle while determining
the cost of borrowing, and businesses may need to revisit their
funding strategies accordingly. Overall, the Amendment Regulations
are welcome move towards a liberalized and principle-based
framework.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
