India's Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Amendment)¹, overhauling the External Commercial Borrowings (ECB) framework under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Principal Regulations). The changes are significant - touching eligibility, end-use, security, lender universe, and compliance mechanics. Here is what lender and borrowers need to know.

Effective date and grandfathering

The Amendment comes into force from the date of its publication in the Official Gazette.² Existing borrowers are largely protected: ECBs for which a Loan Registration Number (LRN) has been obtained prior to the Amendment coming into effect will continue to be governed by the then applicable regulations, except that reporting must be undertaken in accordance with the amended regulations.³ A clean and sensible approach with no disruption to live transactions, at the same time ensuring compliance under the new reporting architecture.

Who can borrow?

The Amendment simplifies and consolidates the eligible borrower universe. Any person resident in India (other than an individual) that is incorporated, established, or registered under a Central or State Act is an eligible borrower, subject to the condition that such person is permitted to raise ECB under applicable legislation.⁴

Two noteworthy carve-outs:

• An eligible borrower that is under a restructuring scheme or corporate insolvency resolution process may raise ECB only if specifically permitted under the restructuring or resolution plan.⁵
• A borrower against whom an investigation, adjudication, or appeal by a law enforcement agency for contravention of any FEMA rule or regulation is pending may still raise ECB - but must disclose details of the pending proceedings in Form ECB 1 (or Revised Form ECB 1 for existing ECBs).⁶

The second point is a pragmatic recognition of commercial reality: enforcement proceedings should not automatically freeze a borrower's access to capital markets.

Who can lend?

The recognised lender universe has been meaningfully broadened. An eligible borrower may now raise ECB from: (a) any person resident outside India; (b) a branch outside India of an entity whose lending business is regulated by the RBI; and (c) a financial institution or branch of a financial institution set up in an International Financial Services Centre (IFSC).⁷

The explicit inclusion of IFSC-based financial institutions as recognised lenders is a welcome development - it deepens the utility of GIFT City as a financing hub and provides an onshore-offshore bridge that structured finance practitioners have long sought.

Borrowing limit: a single, clean formula

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% of net worth as per the last audited standalone balance sheet of the borrower.⁸

For this purpose, outstanding borrowing excludes non-fund-based credit and funds raised through issuance of securities that are mandatorily convertible to equity.⁹ Importantly, the borrowing limit does not apply to eligible borrowers regulated by financial sector regulators - giving banks, NBFCs, and similar entities continued flexibility.¹⁰

Maturity: the three year rule (and its exceptions)

The general rule remains that ECB must have a minimum average maturity period (MAMP) of three years.¹¹ There is, however, a targeted carve-out for manufacturing: an eligible borrower in the manufacturing sector may also raise ECB with an average maturity period of between one and three years, subject to the outstanding amount of such ECBs not exceeding USD 150 million.¹²

Call and put options, if any, shall not be exercisable prior to completion of the MAMP.¹³ The MAMP requirement falls away in specific circumstances - including conversion to non-debt instruments, repayment using proceeds from non-debt instruments, refinancing of ECB, waiver of debt by the lender, and repayment required for corporate actions such as merger, demerger, amalgamation, resolution, or liquidation.¹⁴

However, an eligible borrower may refinance an existing ECB, in part or full, by a fresh ECB, subject to the condition that refinancing doesn't result in failure to meet MAMP requirement applicable on the original borrowing (weighted outstanding maturity in case of multiple borrowings).¹⁵ Further, the conversion of ECB into non-debt instrument is conditional upon there being no additional costs payable to the lender for enabling it, the lender's consent being in place, and either the consent of other lenders (if any) being obtained or, at a minimum, information regarding the conversion being exchanged with them.¹⁶ Where the borrower has also availed credit facilities from an RBI-regulated entity (including its foreign branch or subsidiary), applicable prudential norms (including restructuring regulations) will govern the ECB as well; and any ECB liability being converted into a non-debt instrument must be valued at the exchange rate prevailing on the date of the conversion agreement, or at any other rate that does not result in a liability exceeding that arrived at using that date's exchange rate.¹⁷

Pricing: market linked, not prescriptive

The cost of borrowing must be in line with prevailing market conditions.¹⁸ For shorter tenor ECBs, where the average maturity period is less than three years, the cost of borrowing must comply with the cost ceiling applicable to trade credit under the regulations; for fixed-rate loans, the floating rate plus spread of the corresponding swap must not exceed that ceiling.¹⁹ Prepayment charges or penal interest for default or breach of covenants must also be in line with prevailing market conditions.²⁰

The shift away from prescriptive spread caps towards a market conditions standard reflects a broader regulatory philosophy of liberalisation - letting markets, rather than regulators, determine the cost of capital.

End-use restrictions: codified and consolidated

One of the most significant structural changes in the Amendment is the introduction of a standalone consolidated end-use restriction provision - new Regulation 3A.²¹ Regulation 3A expressly restricts the use of borrowed funds for specified purposes in India. The prohibited end-uses include:

• Chit funds and Nidhi companies.²²
• Real estate business and construction of farmhouses (subject to carve-outs for construction-development projects, industrial parks, and infrastructure activity).²³
• Agricultural and animal husbandry activities (with limited exceptions for floriculture, aquaculture, and agro-allied services).²⁴
• Plantations (with limited exceptions) and trading in Transferable Development Rights.²⁵
• Transacting in listed or unlisted securities - with an important carve-out for corporate actions such as mergers, demergers, amalgamations, acquisitions of control, and transactions governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016.²⁶
• Repayment of a domestic INR loan that was either itself availed for a restricted end-use, or is classified as a non-performing asset under applicable prudential norms.²⁷
• On-lending for any purpose that is itself a restricted end-use.²⁸

The securities carve-out merits particular attention. The Explanation to Regulation 3A(1)(g) makes clear that borrowing for securities transactions must be for strategic purposes only i.e., those driven by the core objective of creating long-term value through potential synergies, rather than short-term gains.²⁹ This is a purposive restriction that will require borrowers, their financial advisors and their counsel to carefully assess transaction rationale when structuring acquisition financings.

Security: a comprehensive framework

The Amendment sets out a detailed and, for the most part, permissive security framework. ECBs may be secured by a charge over immovable assets, movable assets, financial assets, and intangible assets (including intellectual property rights) in favour of the non-resident lender or security trustee, and by the issuance of guarantees in favour of the lender or security trustee in accordance with the Foreign Exchange Management (Guarantees) Regulations, 2026.³⁰

Conditions attach: the borrowing agreement must contain a clause requiring the borrower to provide security; a no-objection certificate from existing Indian lenders must be obtained before creating a charge on an encumbered asset; and creation of a charge shall not be construed as permission for the overseas lender or security trustee to acquire the underlying asset in India.³¹

Notably, entities regulated by the RBI are prohibited from providing any type of guarantee.³²

On enforcement: the lender's claim is restricted to the outstanding claim against the ECB;³³ transfer of any asset must comply with FEMA;³⁴ and where the lender cannot acquire the asset under FEMA, sale proceeds from transfer to a person resident in India may be remitted to the lender to extinguish the outstanding ECB claim.³⁵

Reporting: more streamlined, consequences more explicit

The reporting framework is now more expressly codified. Borrowers must file Form ECB 1 to obtain an LRN,³⁶ Revised Form ECB 1 within seven calendar days from the end of the month in which any change in ECB parameters take effect,³⁷ and Form ECB 2 within seven calendar days from the end of the month in which ECB proceeds are received or debt servicing is undertaken.³⁸ The consequences of non-compliance are more clearly articulated: where reporting timelines are not met, the borrower may pay a late submission fee in accordance with RBI guidelines.³⁹ Further, a borrower with an active LRN who fails to submit any specified return for four or more consecutive quarters after the quarter in which a drawdown or debt servicing was scheduled, and who cannot be reached at its registered address or through its auditors, directors, or promoters, will be designated as an 'untraceable borrower'⁴⁰ - triggering notification to the RBI and the Directorate of Enforcement.⁴¹

Key takeaways

The 2026 Amendment represents a genuine consolidation and liberalisation of India's ECB framework.

The principal themes are:

• Broader lender access: IFSC entities are now expressly in scope as recognised lenders.
• Unified borrowing limits: the multi-track structure is replaced by a single, flexible formula.
• Codified end-use restrictions: consolidated into a standalone provision with purposive carve-outs, particularly for strategic acquisitions.
• Market-priced borrowings: cost of borrowing is now tethered to market conditions rather than prescribed caps.
• Stronger compliance architecture: clearer reporting timelines, late fees, and an "untraceable borrower" mechanism with real enforcement consequences.

For offshore lenders, the broadened lender universe and the IFSC route represent a genuine opening. For Indian corporates, the unified borrowing limit and clearer end-use framework should reduce structuring uncertainty. The message from the RBI is clear: access to offshore capital is being made easier, but the compliance infrastructure is being simultaneously tightened.

With our established India Desk and extensive experience in advising funders in the international markets and GIFT City and borrowers in India on a broad range of ECB transactions over the years, our International Banking & Finance team is well placed to assist clients in understanding the practical implications of the new regime. Please feel free to contact us should you wish to discuss how these developments may affect your financing structures or documentation.

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Disclaimer: The information contained in this publication is accurate as of the date stated in this document and is provided for general reference purposes only. It does not constitute legal advice and should not be relied upon as such. As we are not qualified to advise on Indian law, formal legal advice from Indian counsel should be obtained in relation to any transaction involving these regulations.

1. Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, Notification No. FEMA 3(R)(5)/2026-RB dated 9 February 2026, issued by the Reserve Bank of India ("Amendment"). ↩
2. Amendment, Regulation 1(2). ↩
3. Amendment, Regulation 1(3). ↩
4. Amendment, Schedule I, Paragraph 1(1). ↩
5. Amendment, Schedule I, Paragraph 1(2). ↩
6. Amendment, Schedule I, Paragraph 1(3). ↩
7. Amendment, Schedule I, Paragraph 2(a) - (c). ↩
8. Amendment, Schedule I, Paragraph 5(1). ↩
9. Amendment, Schedule I, Paragraph 5(1), Explanation. ↩
10. Amendment, Schedule I, Paragraph 5(3). ↩
11. Amendment, Schedule I, Paragraph 6(1). ↩
12. Amendment, Schedule I, Paragraph 6(2). ↩
13. Amendment, Schedule I, Paragraph 6(3). ↩
14. Amendment, Schedule I, Paragraph 6(4)(a) - (e). ↩
15. Amendment, Schedule I, Paragraph 12. ↩
16. Amendment, Schedule I, Paragraph 13(1) - (2). ↩
17. Amendment, Schedule I, Paragraph 13(3) - (4). ↩
18. Amendment, Schedule I, Paragraph 7(1). ↩
19. Amendment, Schedule I, Paragraph 7(2). ↩
20. Amendment, Schedule I, Paragraph 8. ↩
21. Amendment, Regulation 3 (inserting new Regulation 3A into the Principal Regulations). ↩
22. Amendment, Regulation 3A(1)(a) - (b). ↩
23. Amendment, Regulation 3A(1)(c). ↩
24. Amendment, Regulation 3A(1)(d). ↩
25. Amendment, Regulation 3A(1)(e) - (f). ↩
26. Amendment, Regulation 3A(1)(g). ↩
27. Amendment, Regulation 3A(1)(h). ↩
28. Amendment, Regulation 3A(1)(i). ↩
29. Amendment, Regulation 3A(1)(g), Explanation. ↩
30. Amendment, Schedule I, Paragraph 11(1)(a) - (b). ↩
31. Amendment, Schedule I, Paragraph 11(2)(a) - (c). ↩
32. Amendment, Schedule I, Paragraph 11(3). ↩
33. Amendment, Schedule I, Paragraph 11(4)(a). ↩
34. Amendment, Schedule I, Paragraph 11(4)(b). ↩
35. Amendment, Schedule I, Paragraph 11(4)(c). ↩
36. Amendment, Schedule I, Paragraph 16(1)(a). ↩
37. Amendment, Schedule I, Paragraph 16(1)(b). ↩
38. Amendment, Schedule I, Paragraph 16(1)(c). ↩
39. Amendment, Schedule I, Paragraph 16(2). ↩
40. Amendment, Schedule I, Paragraph 16(6)(a) - (b). ↩
41. Amendment, Schedule I, Paragraph 16(7). ↩