New External Commercial Borrowing Regulations 2026: Complete Practical Overview
The Reserve Bank of India has issued sweeping amendments to India’s External Commercial Borrowings (ECB) regime through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. These changes substantially rework who can borrow, how much can be borrowed, cost norms, permitted end-uses, security structures, and reporting obligations, while keeping strong safeguards to prevent misuse.
The revised regime is prospective in nature. Existing ECBs that already carry a Loan Registration Number (LRN) on the date the amended regulations come into force will continue to be governed by the earlier framework, except that the new reporting timelines and procedures will apply to them.
Macroeconomic and Policy Context
During the first half of FY26, Indian entities mobilised 18.49 billion dollars through ECBs, a noticeable fall from 25.42 billion dollars in the same period of the previous year, as per RBI statistics. Multiple macro factors contributed to this slowdown:
- The rupee weakened by over 6 percent against the US dollar, driven by high demand for dollars, portfolio capital outflows, and the impact of US tariffs on Indian exports.
- Hedging costs rose sharply in 2025 as the rupee slid, making foreign currency borrowing unattractive despite global liquidity.
- Domestic lending rates started softening only from February 2025, after the Reserve Bank cut the repo rate by an aggregate 125 basis points.
Despite the challenging backdrop, several large-ticket ECB deals came through, such as:
- A 400 million dollar borrowing by Tata Capital in January 2025
- A 750 million dollar borrowing by Mumbai International Airport Ltd in June 2025
- A 300 million dollar borrowing by Sammaan Capital in August 2025
The 2026 amendments are intended to respond to these headwinds by:
- Removing hard caps on borrowing cost
- Expanding the overall quantum that can be raised
- Creating more clarity and flexibility around use of funds, especially for land and immovable property, subject to strict conditions
Collectively, these measures aim to give Indian corporates a more competitive and flexible route to foreign capital while keeping a tight leash on speculative or high-risk uses.
1. Eligible Borrowers and Recognised Lenders
1.1 Who Can Borrow Under the Revised ECB Rules
Under the amended Schedule I, an eligible borrower is:
- Any person resident in India,
- Other than an individual,
- Which is incorporated, established or registered under a Central or State law,
- And is otherwise permitted under applicable laws to raise ECB.
Additional specific situations:
Entities under restructuring or insolvency
- Where the assessee is under a restructuring scheme or a corporate insolvency resolution process, ECB can be raised only if the approved restructuring or resolution plan specifically authorises external borrowing.
Borrowers under enforcement scrutiny
- If an eligible borrower is under investigation, adjudication, or appeal by any law enforcement agency for alleged breach of rules, regulations, or directions under the Foreign Exchange Management Act, it may still access ECB.
- However, full particulars of such ongoing proceedings must be disclosed in Form ECB 1 (or Revised Form ECB 1 for existing ECBs).
1.2 Who Qualifies as a Recognised Lender
Under the revised framework, ECBs can be raised from:
- A person resident outside India; or
- A foreign branch of an Indian entity whose lending operations are under RBI regulation; or
- A financial institution or its branch operating in an International Financial Services Centre (IFSC).
These recognised lenders form the universe from which compliant ECBs may be sourced.
2. Nature of ECB, Eligible Instruments and Exclusions
2.1 Currency Flexibility
Eligible borrowers can raise ECB:
- In foreign currency, or
- In Indian Rupees.
Change of currency is permitted, subject to:
- Foreign currency to foreign currency
- Foreign currency to Indian Rupees
- Indian Rupees to foreign currency
The exchange rate for such change may be:
- The rate prevailing on the date of the agreement for currency change; or
- Any other rate, provided it does not increase the borrower’s liability compared to using the prevailing rate.
2.2 What Qualifies as ECB
ECB covers virtually any commercial borrowing arrangement that involves:
- An agreed interest payment (by whatever label, such as fee, margin etc.), and
- A commitment to repay principal.
The umbrella includes:
- Foreign Currency Convertible Bonds (FCCBs)
- Foreign Currency Exchangeable Bonds (FCEBs)
Further, amounts received from non-residents on or after April 30 2007 against issue of preference shares or debentures that are not fully and mandatorily convertible into equity are also treated as ECB.
2.3 Instruments and Transactions Not Treated as ECB
Certain forms of foreign funding are expressly excluded from the ECB definition:
- Trade credit with an original maturity up to three years
- Export advances falling under specific export regulations
- Investments made under Foreign Exchange Management (Debt Instruments) Regulations 2019
- Funding through convertible notes governed by Foreign Exchange Management (Non-Debt Instruments) Rules 2019
- Debt provided by a Foreign Venture Capital Investor under the said Non-Debt Instrument Rules
These will continue to be governed by their own distinct frameworks, and do not fall within the ECB basket.
3. Borrowing Caps, Maturity Rules and Cost of Funds
3.1 Quantum of ECB Permitted
For most eligible borrowers, the revised rules provide a dual threshold, and the assessee may raise ECB up to the higher of:
- 1 billion dollars of outstanding ECB, or
- Total outstanding borrowing (domestic plus external) up to 300 percent of net worth, as per the latest audited standalone balance sheet.
Certain clarifications: