The Reserve Bank of India (the “RBI”) has amended the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 through the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (the “Revised Regulations”). The Revised Regulations are dated February 9, 2026 and have come into effect from February 16, 2026.
The Revised Regulations bring about a significant change in the limits of external commercial borrowings (“ECBs”) that can be raised. Earlier ECBs of up to USD 750 million (that was temporarily increased to USD 1.5 billion for ECBs raised till December 31, 2022) or USD 3 million for start-ups could be raised per financial year. Now, an eligible borrower will be permitted to raise the greater of ECBs of up to USD 1 billion or up to 300% of the borrower’s net worth as per its previous financial year’s standalone balance sheet.
The Revised Regulations overhaul the previous framework on ECBs, primarily by expanding the base of potential commercial borrowers and lenders. Under the Revised Regulations any non-natural person who is resident in India is permitted to raise ECBs, namely those incorporated in India, established in India, or registered under a Central or State Act (provided that they are permitted to accept ECBs within the relevant incorporating Act). The Revised Regulations also liberalises the scope of potential borrowers. Now entities undergoing a corporate insolvency resolution process or a restructuring scheme are also allowed to raise ECBs, if permitted under their restructuring or resolution plan. Even those borrowers who may have pending adjudication or investigation processes under the Foreign Exchange Management Act, 1999 can also raise ECBs, provided that they disclose the action in Form ECB 1 or Revised Form ECB 1, as the case may be.
Another significant change is to the definition of recognised lenders. Now, any eligible borrower may raise ECBs from any person resident outside of India, any foreign branch of an entity whose lending activities or business is regulated by the RBI, or a financial institution (or branch) set up in an IFSC. Earlier, this framework was limited to permitted borrowings from only overseas suppliers, banks and financial institutions, financial institutions in IFSCs in India, or foreign equity holders. This amendment certainly widens the pool for potential financiers, with more bodies permitted to borrow more money from more diversified sources. As an example, where earlier an Indian company could raise ECBs from a foreign entity that held shares in it, now it can raise funds from any other entity in its group even if it doesn’t hold any equity in the Indian entity, provided that it is done on an arm’s length basis.
The erstwhile regime also required the lender to be resident of a country that was either a member of the Financial Action Task Force, a country that is a signatory to the International Organisation of Securities Commission’s Multilateral Memorandum of Understanding, or a member of a similar regional body of which India is a member. Though this liberalisation does expand the number of jurisdictions and potential lenders that Indian borrowers can approach, doing so may impact its global anti-bribery compliance activities, which often requires certain declarations to be made in this regard.
The Revised Regulations also brings in greater commercial flexibility by removing the all-in cost ceilings under the previous regulations. Now, rather than being tethered to any specific benchmarks, the cost of borrowing has been liberalised as per market conditions. The Revised Regulations also bring about more uniformity by prescribing a single minimum average maturity period (“MAMP”) of three years, except for ECBs in the manufacturing industry where this period is between one year and three years (provided that the borrower’s outstanding ECBs do not exceed USD 150 million). This greatly simplifies the regime from the previous regulations, which prescribed different periods based on different use cases.
There has also been a change in the reporting requirements, which is applicable to all ECBs, both existing and new. Form ECB 2 has now been made into an event-based filing, a departure from the previous monthly compliance obligation. The Form will now need to be submitted within seven days from the utilisation or any ECB proceeds or any debt-servicing being undertaken. The Revised Form ECB 1 will now also need to be submitted within seven days from any change in parameters reported under Form ECB 1 for obtaining an LRN and providing details of the ECB, or for reporting any investigations under the FEMA.
The terms of conversion of ECBs into non-debt instruments, subject to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, have also been amended. First, this conversion should not impose or result in any additional costs payable by the lender. Second, the lender must consent to such conversion. Third, all other lenders are also required to consent to the conversion, or alternatively they must at least receive information regarding the conversion. Fourth, if the ECB has been raised from an entity regulated by the RBI, including its foreign branch or subsidiary, the RBI’s prudential regulations will also be applicable.
The Revised Regulations open the door for more financing to flow to Indian entities, permitting more operational flexibility and greater investment mechanisms. However, companies should also be cognisant of the potential impact these regulations could have. For instance, the requirement for transactions between related parties to be on an arm’s length basis may require a re-examination of existing or proposed inter-company transactions. As a whole, the Revised Regulations are a promising start to further liberalising the borrowing landscape for Indian businesses.
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