FEMA (Borrowing And Lending) (First Amendment) Regulations, 2026 – Key Changes In The ECB Framework

Eligible Borrowers

• All entities eligible to receive FDI.
• Port Trusts, Units in SEZ, SIDBI, and EXIM Bank.
• Additionally for INR denominated ECB – Registered entities engaged in micro-finance activities such as not for profit companies, registered societies / trusts / cooperatives, etc.

• Any person resident in India (other than an individual) incorporated/ established/ registered under a Central or State Act, provided that, such person has been permitted to raise ECB under applicable law.

Definition of 'Eligible Borrowers' has been expanded to include all entities incorporated/ established/ registered in India.

Recognized Lenders / Related Parties

• Persons (except individuals) who were residents of FATF or IOSCO compliant countries.
• Multilateral and Regional Financial Institutions with India as a member country.
• Individuals who were foreign equity holders or who proposed to subscribe to foreign listed bonds or debentures.
• Foreign branches / subsidiaries of Indian banks (for foreign currency ECB (FCY ECB) except foreign currency convertible bonds (FCCBs) and foreign currency exchangeable bonds (FCEBs)).

• Persons resident outside India.
• Foreign branches of RBI regulated lending entities.
• Financial institutions (or a branch thereof) set up in IFSC.
• ECBs from related parties to be obtained on an arm's length basis.

Most of the restrictions on 'Recognised Lenders' have been lifted and the pool of permissible lenders for ECBs has been significantly widened.

Further, there is now a requirement for loans to related parties to be only on arm's length basis.

All-in-Cost Ceiling / Cost of Borrowing / Prepayment Charges / Penal Interest

• Specific All-in-Cost ceiling limits linked to the relevant benchmark rate + prescribed spread for all ECBs.
• Express caps on FCCB issue related expenses (i.e. 4% for public issue; 2% for private placement).
• Prohibition on use of ECB proceeds for servicing All-in-Costs.
• Prepayment charges/ penal interest limited to 2% above the interest rate.

• Definition and references of 'All-in-Cost' have been deleted and instead the concept of 'cost of borrowing' has been introduced.
• 'Cost of borrowing' includes interest and all other charges pertaining to ECBs, but excludes commitment fees and statutory taxes payable in India.
• No specific ceiling limits prescribed for 'cost of borrowing', but it should be as per the prevailing market conditions.
• No specific ceiling limits prescribed for prepayment charges/ penal interest on the ECBs, but the same should be as per the prevailing market conditions.

Rigid ceiling-based restrictions have been lifted, enabling flexibility in pricing of ECBs as per market conditions.

In case of ECBs with average maturity period of less than 3 years, the cost of borrowing will be subject to the applicable trade credit ceiling.

Minimum Average Maturity Period (MAMP)

• Category-driven MAMP ranging from 1 to 10 years depending on end-use and borrower/ lender classification.

• Uniform MAMP of 3 years for all ECBs.
• Manufacturing entities permitted 1–3 years maturity (subject to a cap of outstanding ECB of USD 150 million).
• Exemptions from MAMP compliance in the following instances:
  • conversion of ECBs (including FCCB and FCEB) to non-debt instruments;
  • repayment of ECBs using the proceeds from issuance of non-debt instruments;
  • refinance of ECBs (subject to what is stated in the Regulations);
  • waiver of debt by the lender; and
  • repayment of ECBs pursuant to corporate actions such as closure, merger, demerger, arrangement, acquisition of control, amalgamation, resolution or liquidation by the lender or the borrower.

MAMP has been standardized across borrowers and lenders from all sectors. Further, specific exemptions from MAMP compliance have now been provided in the Regulations, which offer greater flexibility for restructuring and other corporate actions.

End-use Restrictions

• The ECB Directions provided an inclusive list of prohibited uses of ECB proceeds covering real estate activities, investments in capital markets, equity investment, working capital and general corporate purposes, repayment of rupee loans, and on-lending, subject to the carve outs provided in the ECB Directions.
• The Borrowing and Lending in INR Directions provided the following additional restrictions for companies borrowing in INR from NRIs/ PIOs:
  • such borrowing companies could not carry out agricultural/ plantation/ real estate business or trade in transferrable development rights (TDRs) or act as a Nidhi or Chit Fund company;
  • the proceeds from such loans would have to be utilised only for business of the borrowing company; and
  • the proceeds from such loans could not be utilized for construction of farm houses, for investment, or for on-lending.

• The newly inserted Regulation 3A consolidates all restrictions on end-use of borrowed funds. The negative list of end-use in Regulation 3A is as follows:
  • chit funds and Nidhi companies;
  • real estate business and construction of farm houses (including imposition of additional conditions for construction projects and industrial parks);
  • agricultural and animal husbandry (with a list of specific exemptions);
  • plantation (except tea, coffee, rubber, cardamom, palm oil tree, olive oil plantation);
  • trading in TDRs;
  • transactions in listed /unlisted securities, except for strategic corporate purposes (such as for mergers and acquisitions (M&A), acquisition of control under the Insolvency and Bankruptcy Code, 2016 (IBC) etc.) "driven by the core objective of creating long-term value through potential synergies, rather than for short-term gains";
  • repayment of domestic INR loans where the underlying loan was availed for a restricted end-use or is a non-performing asset; and
  • on-lending for any restricted purpose mentioned above.

While the list of end-use restrictions for ECBs remains expansive, a number of crucial exemptions have been provided, including permitting use of ECB proceeds for (a) strategic corporate actions such as M&A or acquisition of assets under the IBC; and (b) certain real estate activities (discussed below).

Further, end-use restrictions for utilising ECB proceeds for working capital or general corporate purposes, have been removed.

Real Estate: "Activity" v. "Business"

• End-use restriction applied to "real estate activities", which was defined broadly under the ECB Directions to include owning, buying, selling, leasing of commercial/ residential property or land, including intermediary/ agent-based real estate functions.
• Carve-outs made under the ECB Directions for:
  • construction/ development of industrial parks/ integrated townships/ SEZ;
  • purchase/ long term leasing of industrial land as part of new project/ modernisation of expansion of existing units; and
  • activities under the 'infrastructure sector',
  all of which were excluded from the ambit of "real estate activities".
• Under the Borrowing and Lending in INR Directions, the restriction on utilisation of proceeds by the borrowing company for real estate did not include development of townships, construction of residential/ commercial premises, roads or bridges.

• The Regulations use the term "real estate business" which specifically involves a, purchase, sale or lease of land/ immovable property "with a view to earning profit".
• The following activities (if not amounting to a 'transfer') shall not be considered to fall within the term "real estate business":
  • construction/ development of industrial parks/ integrated townships/ SEZ or modernisation / expansion of existing units;
  • activities under the 'infrastructure sector';
  • construction-development project (including residential/ commercial projects);
  • commercial or residential properties for own use of the borrower; and
  • real estate broking services.

ECBs can now be used for specified real estate activities, which are excluded from the definition of "real estate business".

It may be noted that 'transfer' in relation to the real estate business has been given a wide meaning including extinguishment of rights, compulsory acquisition, transactions under Section 53A of the Transfer of Property Act, 1882 (i.e. possession in lieu of part performance), and any transaction "which has the effect of transferring, or enabling the enjoyment of, any immovable property".

Borrowing Limits

• Annual ECB cap of USD 750 million under the automatic route.
• ECB liability–equity ratio capped at 7:1 for FCY ECBs raised from a direct foreign equity holder under the automatic route, except where the total outstanding ECB (including proposed borrowing) did not exceed USD 5 million.

• Eligible borrowers may raise ECB up to the higher of:
  • outstanding ECB of USD 1 billion; or
  • total outstanding borrowing (ECB + domestic) of upto 300% of the net worth of the borrower (based on latest audited standalone balance sheet).

• Borrowing limits are not applicable for borrowers who are regulated by financial sector regulators such as RBI, SEBI, IRDA, etc.

Eligible borrowers will have access to a higher limit of ECBs, basis their financial position. Further, regulated entities such as insurance companies and NBFCs can raise ECBs as per the respective norms of their regulators.

Change in Currency

• Bar on conversion of currency of the ECB from INR to any FCY.

• Conversion of currency of the ECB from INR to any FCY expressly permitted.

The ECB framework has been liberalised to allow INR denominated ECB to be converted into a FCY ECB without any approval requirements.