Notification No. FEMA 3(R)(5)/2026-RB

📅Notification Date: February 09, 2026

âš¡Effective Date: February 16, 2026

The Reserve Bank of India (RBI) has notified the External Commercial Borrowing (ECB) framework through The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026.

Key highlights in External Commercial Borrowing (ECB) Framework:-

Eligible borrowers :-

A person resident in India (other than an individual) incorporated, established or registered under a Central Act or State Act may raise ECB.

An eligible borrower that is under a restructuring scheme or corporate insolvency resolution process may raise ECB.

An eligible borrower against whom investigation or adjudication or appeal by the law enforcing agencies for contravention of any rule or regulation or direction issued under the Act is pending, may raise ECB.

Recognised lenders :-

ECB can be raised by the following lender:-

A person resident outside India; or

A branch outside India or in the IFSC of an entity whose lending business is regulated by the Reserve Bank.

Currency of borrowing:-

An eligible borrower may raise ECB denominated in foreign currency (FCY) or Indian Rupee (INR).

Currency of ECB may be changed from one FCY to another FCY, an FCY to INR and INR to an FCY.

Change of currency shall be at the exchange rate prevailing on the date of the agreement for such change or at an exchange rate which results in a liability lower than that arrived at by using the exchange rate prevailing on the date of the agreement.

Forms of borrowing:-

An eligible borrower may raise ECB in any form of commercial borrowing arrangement, that involves payment of agreed interest by whatever name called, and repayment of principal.

Explanation: ECB includes FCCB and FCEB.

Borrowing limit :-

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 per cent of net worth as per the last audited balance sheet.

Note:- Exemption to eligible borrower which is regulated by  financial sector regulators.

Maturity:-

An eligible borrower shall raise ECB only with minimum average maturity period (MAMP) of three years.

An eligible borrower engaged in manufacturing sector may raise ECB with average maturity period between one year and three years, subject to the condition that outstanding stock of such ECBs shall not exceed USD 50 million.

Call and put options, if any, shall not be exercisable prior to completion of MAMP.

Cost of borrowing:-

The cost of borrowing shall be in line with prevailing market conditions, subject to the satisfaction of the designated AD Category I bank.

In case ECBs with average maturity period of less than three years the cost of borrowing shall also be in compliance with cost ceiling specified for Trade Credit in these Regulations

The cost of borrowing shall not be paid by using the proceeds of ECB.

Other Cost:-

Prepayment charge / penal interest, if any, for default or breach of covenants shall be in line with prevailing market conditions, subject to satisfaction of the designated AD Category I bank.

Arm’s length principle:-

ECB from a related party shall be carried out on an arm’s length basis.

ECB Proceeds:-

An eligible borrower shall drawdown ECB only after obtaining the Loan Registration Number (LRN).

ECB proceeds shall be repatriated immediately and credited to an INR account held in India with the designated AD Category I bank. Pending utilisation, the funds may be invested in a fixed deposit with the designated AD Category I bank.

ECB proceeds meant to be utilized for a permitted foreign currency expenditure may be credited to an FCY account held in India with the designated AD Category I bank or an FCY account held outside India.

Securing the borrowing:-

ECBs may be secured by –

Assets:- Creation of charge on immovable assets, movable assets, financial assets and intangible assets (including intellectual property rights) in favour of the non-resident lender or security trustee; and

Guarantee:- Issue of corporate guarantee or personal guarantees in favour of the non-resident lender or security trustee.

Securing ECBs shall be subject to following terms and conditions –

The borrowing agreement contains a clause requiring the borrower to provide such security;

The security shall be co-terminus with the underlying ECB;

No objection certificate, as applicable, from the existing lenders in India shall be obtained before creation of charge; and

Creation of charge on an asset shall not be construed as a permission to acquire the asset in India, by the overseas lender / security trustee.

Entities regulated by the Reserve Bank shall not provide (issue) any type of guarantee.

In case of creation of charge on movable assets, the encumbered movable assets may also be taken out of the country subject to getting ‘No Objection Certificate’ from domestic lender(s), if any.

In the event of enforcement / invocation of the security:-

The claim of the lender shall be restricted to the outstanding claim against the ECB;

Transfer of any asset / property shall be in compliance with the Act or Rules, Regulations or Directions issued thereunder; and

The asset / property may be transferred to a person resident in India to utilise the proceeds for extinguishing the outstanding claim against the ECB.

Refinancing:- An eligible borrower may refinance an existing ECB subject to RBI Rules.

Conversion of ECB into non-debt instrument :-

Conversion of the ECB into a non-debt instrument shall be subject to the following terms and conditions:-

There are no additional costs payable to the lender for enabling such conversion;

Consent of the ECB lender is in place; and

Consent of other lenders, if any, to the same borrower is available or at least information regarding conversions is exchanged with other lenders of the borrower.

if the borrower has availed credit facilities from an entity regulated by the Reserve Bank (including its foreign branch or subsidiary) then Prudential Regulation will apply.

Liability of ECB for conversion into non-debt instruments is based on the exchange rate on the agreement date or a rate that reduces the liability that Determined using exchange rate of the agreement date.

Reporting:-

Eligible borrowers shall submit the following application/return through the designated AD Category I bank in the format provided by the Reserve Bank:-

“Form ECB’ for obtaining Loan Registration Number (LRN);

“Form ECB 2’ for reporting drawdown and debt servicing, within thirty calendar days from the date of such cashflow; and

‘Revised Form ECB’ for reporting changes in the ECB parameters as reported in Form ECB, within thirty calendar days from the date of such change.

If the borrower failed to meet the deadline, Late fee apply.

The designated AD Category I banks may approach the Reserve Bank for cancellation of an allotted LRN, subject to the condition that no draw down has taken place.

Prohibition on end-use of borrowed funds:-

Funds borrowed in terms of these Regulation shall not be utilised for the following purposes:-

Chit Funds;

Nidhi Company;

Agricultural or plantation activities, except activities/sectors permitted for Foreign Direct Investment (FDI);

Real estate business or construction of farmhouses with exceptions;

Trading in Transferrable Development Rights (TDR);

Transacting in listed/unlisted securities with specified exception

Conclusion:-

The Reserve Bank of India (RBI) has revised the External Commercial Borrowing (ECB) framework to provide greater flexibility, update end-use restrictions, and revise borrowing limits and eligible lenders in line with evolving market conditions, while also enhancing India’s global recognition. The objective is to ensure better due diligence and strengthen RBI’s regulatory approach in managing external borrowings.

Following are the key takeaways:-

Earlier, only well-settled companies were allowed to raise ECB. Now, even companies under CIRP or facing investigations can access ECB, helping them improve funding and manage temporary financial challenges.

RBI has also broadened the definition of lenders to offer companies more funding options and enhance India’s global recognition in the ECB market.

The revised limits allow companies to raise funds according to their financial size and growth requirements, providing flexibility for both large and mid-sized enterprises.

It allows borrowers to reduce debt obligations by converting part of the loan into non-debt instruments which reduce repayment of loan pressure.

ECB framework now provide transparency and accountability. Now every ECB drawdown is linked to an LRN issued by RBI, allowing central tracking of all external borrowings.

The changes introduced by the RBI in the ECB framework are highly beneficial for corporates, as they provide easier access to foreign capital market, flexible borrowing options, a wider range of lenders, enhanced transparency, and greater global recognition which will be helpful and value addition.