Phoenix Legal are most popular:
- within Government, Public Sector, Intellectual Property and Corporate/Commercial Law topic(s)
- in India
- with readers working within the Oil & Gas and Law Firm industries
COMMENTS | Draft FOREIGN EXCHANGE MANAGEMENT (Borrowing and Lending) (Fourth Amendment) Regulations, 2025
The Reserve Bank of India (RBI) has proposed significant changes to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (ECB Regulations), aimed at simplifying the external commercial borrowings (ECBs) regime. For this purpose, they have published the Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025 (Amendment Regulations) for public comments. The RBI has invited comments on the Amendment Regulations before October 24, 2025. The changes suggested are as follows:
- Eligible Borrowers: Currently, only entities that can raise foreign direct investments can avail themselves of ECBs. It is proposed that all incorporated entities avail ECBs.
- Recognised Lenders: It is proposed that any non-resident (including individuals) can lend ECB to the borrower. This is broader than the list of recognized lenders under the Existing Regulations.
- Forms of Borrowing: ECB can be in the form of any commercial borrowing that requires payment of interest and repayment of principal, including FCCBs and FCEBs, but excludes trade credits up to three years, export advance, investment received in terms of FEMA (Debt Instrument) Regulations, 2019 and convertible notes issued under Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
- Change of Currency: It is proposed that an INR-denominated ECB can be converted to any foreign currency. In furtherance of this change, the consent of the ECB lender for adopting a lower exchange rate than the one prevailing on the date of the agreement has been removed.
- Borrowing Limit: The borrowing limit has been increased from the existing USD 750 million per financial year to the higher of (i) USD 1 billion, or (ii) 3x of net worth (3x limit includes domestic borrowings). This limit will not apply to entities regulated by financial sector regulators.
- End Use Restrictions: Currently, ECB proceeds can be used by NBFCs for on-lending only in relation to equity investment, working capital, and general corporate purposes. It is proposed that ECB proceeds can be used for a larger set of end-uses with limited prohibited end-uses.
- Minimum Average Maturity Period (MAMP): A standardized MAMP of 3 years for all ECB transactions (except for manufacturing sector entities who are allowed to MAMP of 1 to 3 years, subject to certain conditions) has been proposed.
- All in Cost Ceiling: If the ECB has an average maturity period of more than 3 years then, the cost of borrowing will be as per the market conditions, subject to the satisfaction of the designated AD Category I bank, and if less than 3 years, then the ceiling applicable for trade credit which is presently 300 bps plus the benchmark rate, would apply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
