FEMA Borrowing and Lending (First Amendment) Regulations, 2026: Key ECB Changes for Companies<\/p>\n
Introduction<\/p>\n
The Reserve Bank of India (RBI) has introduced significant changes to India’s External Commercial Borrowing (ECB) framework through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026.<\/p>\n
The amendment was notified on 9 February 2026 and published in the Official Gazette on 16 February 2026, bringing the revised framework into effect from the date of publication. The changes aim to simplify ECB regulations, broaden access to overseas funding, rationalise borrowing limits and maturity requirements, and provide greater flexibility to Indian companies in structuring foreign currency and rupee borrowings.<\/p>\n
For Indian companies looking to raise funds from overseas lenders, the 2026 amendment represents a substantial shift towards a more market-oriented and principle-based ECB regime.<\/p>\n
What is External Commercial Borrowing (ECB)?<\/p>\n
External Commercial Borrowing refers to loans and other permitted forms of debt raised by eligible Indian entities from recognised lenders outside India.<\/p>\n
Companies may use ECBs for various permitted business purposes, subject to FEMA requirements relating to eligibility, borrowing limits, maturity, end-use, pricing, reporting and other compliance requirements.<\/p>\n
The 2026 amendment significantly changes several of these requirements.<\/p>\n
One of the major changes is the expansion of the eligible borrower base.<\/p>\n
Under the amended framework, a person resident in India, other than an individual, that is incorporated, established or registered under a Central or State Act may raise ECB, provided its governing legislation permits such borrowing. Entities undergoing restructuring or Corporate Insolvency Resolution Process (CIRP) may also raise ECB where borrowing is specifically permitted under the approved resolution plan.<\/p>\n
This provides greater flexibility compared with the earlier framework, where ECB eligibility was more closely linked to specific categories and FDI eligibility.<\/p>\n
The amendment also broadens the categories of recognised lenders.<\/p>\n
ECB can now be raised from:<\/p>\n
A person resident outside India;<\/p>\n
A branch outside India of an entity whose lending business is regulated by the RBI; and<\/p>\n
A financial institution or branch of a financial institution established in an International Financial Services Centre (IFSC).<\/p>\n
The wider lender base can provide Indian companies with greater access to international funds and alternative financing structures.<\/p>\n
The earlier annual ECB limit of USD 750 million has been replaced with a broader outstanding borrowing framework.<\/p>\n
An eligible borrower can raise ECB up to the higher of:<\/p>\n
USD 1 billion of outstanding ECB, or<\/p>\n
Total outstanding external and domestic borrowings up to 300% of net worth, based on the latest audited standalone balance sheet.<\/p>\n
Certain borrowers regulated by financial-sector regulators are exempt from these borrowing limits, subject to the applicable regulatory framework.<\/p>\n
This change may particularly benefit companies with strong balance sheets and established borrowing capacity.<\/p>\n
The amended framework generally provides for a minimum average maturity period (MAMP) of three years.<\/p>\n
A special relaxation is available for manufacturing companies, which may raise ECB with a MAMP of between one and three years, subject to their outstanding ECB not exceeding USD 150 million. Call and put options cannot generally be exercised before completion of the applicable MAMP.<\/p>\n
This is a significant simplification compared with the earlier framework, under which the required maturity could vary depending on the end-use of the borrowing.<\/p>\n
Companies can now borrow through ECB denominated in either Indian Rupees or foreign currency.<\/p>\n
The regulations also permit conversion:<\/p>\n
From one foreign currency to another;<\/p>\n
From foreign currency to INR; and<\/p>\n
From INR to foreign currency.<\/p>\n
The conversion must follow the prescribed exchange-rate conditions so that the resulting liability does not exceed the permitted amount.<\/p>\n
This can provide companies with greater flexibility in managing currency exposure during the tenure of an ECB.<\/p>\n
One of the most important changes is the removal of the earlier prescriptive pricing framework for ECBs with a MAMP of three years or more.<\/p>\n
Under the amended framework, the cost of borrowing should be in line with prevailing market conditions.<\/p>\n
For ECBs having a MAMP of less than three years, the applicable cost ceiling for Trade Credit continues to apply. Prepayment charges and penal interest must also be aligned with prevailing market conditions. Related-party ECB transactions are required to be undertaken on an arm’s-length basis.<\/p>\n
This gives borrowers and lenders greater commercial flexibility when negotiating interest rates and other financing costs.<\/p>\n
The amendment retains a negative list of activities for which ECB proceeds cannot be used.<\/p>\n
Restrictions continue to apply to areas including:<\/p>\n
Chit funds;<\/p>\n
Nidhi companies;<\/p>\n
Certain real estate businesses;<\/p>\n
Construction of farmhouses;<\/p>\n
Specified agricultural and plantation activities;<\/p>\n
Trading in Transferable Development Rights (TDRs);<\/p>\n
Certain transactions involving listed or unlisted securities;<\/p>\n
Refinancing of loans connected with non-performing assets; and<\/p>\n
On-lending for prohibited purposes.<\/p>\n
At the same time, the new framework provides greater clarity for productive business activities. For example, specified construction and development activities are distinguished from restricted “real estate business.” ECB proceeds may also be used for acquisition of control of Indian entities, subject to the applicable conditions.<\/p>\n
A significant development for corporate transactions is the express permission to use ECB for acquisition of control of an Indian entity.<\/p>\n
This can potentially provide an additional source of funding for mergers, acquisitions and strategic transactions, including certain distressed or restructuring situations.<\/p>\n
However, companies should carefully evaluate the transaction structure, applicable FEMA requirements and the definition of “control” before relying on ECB funding for an acquisition.<\/p>\n
The new framework provides greater flexibility for refinancing existing ECBs.<\/p>\n
The earlier requirement that the fresh ECB should have a lower all-in cost than the existing ECB has been removed. Restrictions relating to refinancing INR ECBs with FCY ECBs have also been relaxed.<\/p>\n
The revised framework therefore gives borrowers more flexibility to restructure their overseas debt based on prevailing financing conditions.<\/p>\n
The amended framework provides greater flexibility regarding security for ECB transactions.<\/p>\n
Security may be created over various types of assets, including:<\/p>\n
Immovable assets;<\/p>\n
Movable assets;<\/p>\n
Financial assets; and<\/p>\n
Intangible assets, including intellectual property.<\/p>\n
The framework also permits third-party security in specified circumstances, providing lenders and borrowers with greater flexibility in structuring collateral packages.<\/p>\n
The reporting framework has also been revised.<\/p>\n
Form ECB has been redesignated as Form ECB 1 for obtaining the Loan Registration Number (LRN), while changes in ECB parameters are reported through Revised Form ECB 1.<\/p>\n
Form ECB 2 is now linked to actual drawdown and debt-servicing events rather than the earlier monthly reporting approach. The relevant reporting is generally required within seven calendar days from the end of the month in which the relevant event occurs.<\/p>\n
The regulations also introduce provisions relating to late submission fees and untraceable borrowers. Borrowers that fail to meet reporting requirements for four consecutive quarters may be classified as untraceable borrowers, following which the Authorised Dealer bank may report the matter to RBI and the Directorate of Enforcement after due diligence.<\/p>\n
Companies planning to raise ECB should review their financing structures in light of the amended framework.<\/p>\n
Key areas to consider include:<\/p>\n
Check borrower eligibility under the revised rules.<\/p>\n
Evaluate overseas lender eligibility before finalising the financing.<\/p>\n
Calculate the applicable borrowing limit based on outstanding ECB, total borrowing and net worth.<\/p>\n
Determine the applicable MAMP and repayment structure.<\/p>\n
Review the permitted end-use of the proposed borrowing.<\/p>\n
Assess currency and foreign exchange risk before choosing INR or FCY borrowing.<\/p>\n
Ensure related-party ECBs are properly structured on an arm’s-length basis.<\/p>\n
Obtain the LRN before drawdown.<\/p>\n
Maintain proper ECB documentation and reporting records.<\/p>\n
Review existing ECBs to determine whether the revised reporting requirements apply.<\/p>\n
Conclusion<\/p>\n
The FEMA Borrowing and Lending (First Amendment) Regulations, 2026 represent a major reform of India’s ECB framework. The changes expand the universe of borrowers and lenders, increase borrowing flexibility, simplify maturity requirements, permit greater currency flexibility, move pricing towards market conditions and liberalise refinancing and acquisition financing.<\/p>\n
For Indian companies, the amendments can make ECBs a more practical source of long-term and strategic funding. However, greater flexibility also comes with the need for careful compliance with FEMA, RBI, Authorised Dealer bank and reporting requirements.<\/p>\n
Companies should therefore review both their proposed and existing ECB arrangements to determine the impact of the 2026 framework on their borrowing structure, end-use, documentation and compliance obligations.<\/p>\n","protected":false},"excerpt":{"rendered":"
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