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Background
- Issuance of FEMA (Borrowing and Lending) (First Amendment) Regulations, 2026 ("Amended Framework"),by the Reserve Bank of India ("RBI") amending the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.
- Supersedes the provisions of the Master Direction – External Commercial Borrowing, Trade Credits and Structured Obligations dated March 26, 20191 ("Master Directions").
- Master Directions together with Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (to the extent amended) (hereinafter "Erstwhile Framework").
- Amended Framework has been published in the official gazette on 16th February 2026 and in effect from then onwards.
| S. No. | Particulars of Change | Erstwhile Framework | Amended Framework |
| 1. | Borrower Eligibility | All entities eligible to receive foreign direct investment ("FDI");Port Trusts, SEZ units, SIDBI, EXIM Bank of India; andEntities engaged in micro-finance activities i.e. registered not for profit companies, registered societies/ trusts/ cooperatives and non-government organisations. | No specific entities specified, so it is more generic now. Given below are the generic heads: A person resident in India (other than an individual) incorporated, established or registered under Indian laws, provided permitted to borrow;Entity under a restructuring scheme or corporate insolvency resolution process, if specifically permitted thereunder;Entity against whom any investigation, adjudication or appeal by a law enforcement agency for contravention of any rule, regulation or direction is pending – subject to adequate disclosures in the Form ECB 1. |
| 2. | Lender Eligibility | Resident of FATF or IOSCO compliant country Multilateral and Regional Financial Institutions where India is a member countryforeign branches/ subsidiaries of Indian banks foreign equity shareholders | Simplified to cover: A person resident outside India; orA branch outside India or in the International Financial Services Centre (IFSC) whose lending business is regulated by the RBI; orbranch of a financial institution (including in the IFSC) as provided under the Foreign Exchange Management (IFSC) Regulations, 2015. |
| 3. | ECB Currency | Change from Indian Rupee (INR) to any freely convertible foreign currency (FCY) not permitted. | Change from Indian Rupee (INR) to any freely convertible foreign currency (FCY) now permitted. |
| 4. | Minimum Average Maturity Period ("MAMP") | MAMP varied basis nature of business (e.g., manufacturing companies), nature of lender (e.g., foreign equity holder), end use of the ECB (e.g., working capital purposes, on-lending), etc.Call and put options not be exercisable prior to completion of MAMP | Simplified for all ECBs All ECBs have an MAMP of 3 years Borrower in manufacturing sector – ECB MAMP between 1 year and 3 years, subject to outstanding amount of such ECBs not being more than USD 150 million Clarifications:call and put options not be exercisable prior to completion of MAMPECB raised in manufacturing sector MAMP between 1 year and 3 years2 Exemptions to meet the MAMP requirements:Conversion of the ECB into non-debt instruments as per Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 ("Non-Debt Instruments Rules")Repayment of ECB using proceeds from non-debt instruments issued in terms of Non-Debt Instruments Rules on repatriation basis, provided the proceeds are received after the ECB drawdownAny refinance as per the revised frameworkWaiver of debt by the lenderRepayment resulting from corporate actions such as merger, demerger, etc. |
| 5. | Forms of Borrowing | Provided separately for ECBs for FCY ECBs and INR denominated ECBsList of eligible forms of borrowing specified upfront (e.g., bank loans, debentures, bonds, floating/fixed rate loans, convertible bonds, lease, etc.), foreign currency convertible bonds ("FCCBs") and foreign currency exchangeable bonds ("FCEBs") | Forms of borrowing simplified to include ECB in any form, provided it entails payment of agreed interest and repayment of principal (including FCEBs and FCCBs).Funds received from a person resident outside India, on or after April 30, 2007, against issuance of preference shares or debentures which are not fully and mandatorily convertible to equity shares.Exemptions: Trade Credit with original maturity up to 3 years; Export advance received in accordance with Foreign Exchange Management (Export of Goods & Services) Regulations, 2015; Investments received in accordance with the provisions of Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 or Foreign Exchange Management (Non-Debt Instrument) Rules, 2019. |
| 6. | Limits on Borrowings | Borrowings limited to USD 750 million or equivalent per financial year. | Borrowings have now been limited to the higher of: outstanding ECB up to USD 1 billion (taking into account the proposed ECB, other than ECB for refinancing); or total outstanding borrowing (external and domestic) up to 300% of the borrower's net worth as per its last audited balance sheet (excluding non-fund based credit and funds raised through issuance of mandatorily convertible securities). |
| 7. | Borrowing costs | Limit on the total cost of borrowings, in the form of All-In-Cost ceiling, ceiling on prepayment premiumSpread within the parameters listed Maintenance of ECB Liability: Equity ratio for certain types of ECBs | Borrowing costs linked to prevailing market conditions. In case of ECBs with maturity period of less than 3 years, the cost of borrowing to be compliant with cost ceiling specified for Trade Credit under Part II of the Master Directions. |
| 8. | Related Party transactions | No concept of related party ECBs.Concept of equity shareholder only | Introduction to 'related party' conceptECBs from any 'related party'3 permitted, provided it is undertaken on an 'arm's length basis'4 |
| 9. | Security | Charge over immovable assets, movable assetsCorporate and personal guarantees Requirement of security clause in the documentsprior NOC from existing lender necessarypledge of securities of the borrowing entity / domestic associate entities, only if held by the promoter, is permittedpledge of other securities only if held by the borrowing entity / its promoter, is permittedcharge over current assets held by the borrower with ADs in India or its promoter, is permitted | security framework simplified to specify only the type of asset on which charge can be created (e.g., immovable assets, movable assets, financial assets and intangible assets)no specific restriction or provisions on the nature of the security providerissuance of guarantee provided it is in accordance with the Foreign Exchange Management (Guarantees) Regulations, 2026 entities regulated by RBI not permitted to issue guarantees Additional considerations for security creation: The borrowing agreement must contain a clause to that effect;The security shall be co-terminus with the underlying ECB;NOCs from relevant lenders is obtained. |
| 10. | Refinancing | Permitted subject to certain conditions including that: outstanding maturity of the original borrowing is not reducedall-in-cost of fresh ECB is lowerborrower is eligible to raise ECBIndian banks permitted to participate only for highly rated corporates (AAA) and for Maharatna/Navratna public sector undertakings. | Borrower permitted to refinance an existing ECB, in part or full, by a fresh ECB, subject to ensuring that MAMP requirement applicable on the original ECB is met.No other specific conditions on costs, etc. specified. |
| 11. | Conversion of ECB into Non-Debt Instrument | Conditions stipulated for conversion included the following: Necessary approvals if required under FDI policy, to be in placelender's consent, without additional cost to lenderadherence to applicable sector cap under FDI policy;compliance with applicable pricing guidelines;relevant reporting to the RBI (through Form FC-GPR / Form ECB 2 Return) | Conditions stipulated for conversion include the following: compliance with the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019;no additional costs payable to the lender for enabling such conversion;consent of the ECB lender and all other lenders (or at least information regarding conversions exchanged with other existing lenders); and compliance with prudential regulations, including those on restructuring, if borrower has availed credit facilities from RBI regulated entities. |
| 12. | Reporting Requirements | "Form ECB" – for obtaining the Loan Registration Number (LRN) and details of the ECB"Revised Form ECB" – for reporting changes in the ECB parameters, within 7 calendar days from the date of such change"Form ECB 2 Return" – for reporting monthly ECB transactions | "Form ECB 1" – for obtaining the LRN and details of the ECB"Revised Form ECB 1" – for reporting any change in previously reported ECB parameters, within 7 calendar days from the end of the month in which such change was given effect;"Form ECB 2" is now required to be filed for reporting receipt of ECB proceeds and debt servicing within 7 calendar days from the end of the month in which the proceeds were received or debt servicing was undertaken. |
Footnotes
1. Part I and Part III of the Master Direction – External Commercial Borrowing, Trade Credits and Structured Obligations dated March 26, 2019 have been deleted. Only Part II (relating to Trade Credit framework) has been retained.
2. Subject to the condition that the outstanding stock of such ECBs shall not exceed USD 50 million
3. "related party" means an entity which qualifies as a related party as per the provisions of the Companies Act, 2013 (18 of 2013). For a person other than a company, this definition shall apply mutatis mutandis
4. "arm's length basis" means a transaction between two related parties that is conducted as if the transacting parties were unrelated, so that there is no conflict of interest
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.
