Update: RBI notifies Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026

The Reserve Bank of India (RBI) has officially notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, proposing specific amendments to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.Effective from February 16, 2026, these amendments represent a structural shift in India’s External Commercial Borrowings (ECB) framework moving away from strictly prescriptive regime to a more market driven and flexible approach.

 

The amended Regulations will be prospectively applicable on External Commercial Borrowings (ECBs). While ECBs for which Loan Registration Number (LRN) were obtained prior to 16 February 2026 shall continue in compliance with the previous applicable regulations on ECBs, reporting for all ECBs are required to be in compliance with the amended regulations irrespective of registration date.

 

Some of the critical changes and relaxations, introduced by the new amended regulations are below:

 

1. Expansion of Eligible Borrowers and Lenders

• Limited Liability Partnerships (LLPs) permitted: In a major regulatory relaxation LLPs are now explicitly permitted to avail of ECBs. Previously, LLPs were heavily restricted from accessing foreign debt, forcing foreign investors to rely solely on Foreign Direct Investments (FDIs) or requiring businesses to convert into private limited companies.
• Access for entities in Corporate Insolvency Resolution Process (CIRP): Entities currently undergoing the CIRP can also now raise funds through the ECB. However, this is strictly contingent upon the borrowing being explicitly permitted under their approved resolution plan.
• Entities Under Investigation: Entities facing pending investigations or adjudications by enforcement agencies are no longer blocked from raising ECBs. They can raise funds without prejudice to the outcome, subject to making mandatory disclosures in Form ECB-1.
• Broader Lender Base and IFSC Integration: The definition of recognized lenders has been vastly broadened. Any person resident outside India including individuals can now lend money under the ECB route to Indian entities. This will facilitate cross border angel investing, debt funding from high net worth individuals (HNIs), and family office lending, which were previously constrained by strict equity holding prerequisites. The definition also expressly recognizes  financial institutions or their branches set up in an International Financial Services Centre as recognized lenders.
• Removal of Geographic Constraints on lenders: The earlier restriction that mandated lenders to be located in FATF or IOSCO-compliant jurisdictions has been removed from the definition of recognized lenders.
• Offshore Indian Bank Branches: Offshore branches of Indian banks are now permitted to lend in Indian Rupees (INR).

 

2. Enhanced Borrowing Limits and Flexible Currency Operations

• Increased Limits: The borrowing ceiling has been substantially increased to accommodate large-scale capital requirements. Entities can now raise the higher of outstanding ECB up to USD 1 Billion or up to 300% of their net worth, the net worth being per last audited balance sheet of the borrower. This is a significant boost for large infrastructure and conglomerate borrowers who previously hit the absolute dollar ceilings too quickly.
• Unrestricted Currency Flexibility: Borrowers now have complete operational flexibility to manage currency risk. Conversions from INR to Foreign Currency (FCY), FCY to FCY, and FCY to INR are explicitly permitted.
• Domestic Parking of FCY Funds: ECBs raised for FCY expenditure such as capital goods imports can now be received and parked in a special FCY account directly within India, simplifying cash flow management and reducing the need to maintain complex offshore escrow structures. Additionally, for the duration awaiting utilisation of such funds, it may be invested outside India in unencumbered fixed deposit up to 1 year or in an unencumbered debt instrument maturing within 1 year.

 

3. Standardized Maturity Period

• Standardized MAMP: The Minimum Average Maturity Period (“MAMP”) has been radically simplified and standardized at 3 years across almost all end uses, eliminating the previous highly fragmented maturity buckets which varied between 3, 5, 7, and 10 years.
• Strategic boost for manufacturing: Manufacturing units benefit from a massive carve-out designed to boost domestic production. They can now raise up to USD 150 million, tripled from the earlier limit, with a significantly reduced MAMP of just 1 year, providing critical liquidity for shorter operational cycles.
• Broad exemptions to MAMP: MAMP compliance is explicitly waived in strategic exit and restructuring scenarios, including:
  1. Conversion of the ECB debt into equity instruments.
  2. Repayment of the debt using incoming FDI proceeds.
  3. Waiver of debt by the lender
  4. Refinancing of the ECB.
  5. Early repayment triggered by involuntary or structural corporate actions like mergers, amalgamations, or liquidations

 

4. Rationalization of Pricing Guidelines:

• Long-Term ECBs: For long-term ECBs (MAMP > 3 years), the rigid cost caps have been removed, the cost of borrowing is now entirely market-linked. Additionally, the prepayment charges or penal interest for defaults are no longer hard capped and will be governed strictly by prevailing market conditions.
• Short/Medium-Term ECBs (MAMP 1–3 years): To prevent volatile short-term outflows, a formula cap remains but is tied to certain benchmarks. It is capped at the Alternative Reference Rate (ARR) + 300 basis points (bps) for FCY loans, and ARR + 250 bps for INR loans.
• Strict arm’s length rule for related parties: While related party ECBs are permitted, they must be executed strictly on an arm’s length basis.

 

5. Streamlined Reporting and Compliance

The RBI has moved toward a highly pragmatic, transaction based reporting system, significantly reducing the monthly compliance friction for corporate secretarial teams:

• Transaction-Triggered ECB-2 Returns: The burden of filing monthly “nil” returns is over. Monthly filing of ECB-2 returns is now applicable only if a transaction actually occurs during that specific month. It must be submitted within 7 calendar days from the end of that month.
• Revised ECB-1: If the borrower and lender agree to change any borrowing parameters, a revised Form ECB-1 must be filed within 7 calendar days from the month’s end.
• Standardized Late Submission Fees (LSF): LSF provisions are now explicitly applicable for delays in filing both the revised ECB-1 and ECB-2 returns, treating them as compoundable civil delays rather than immediate severe FEMA violations.

 

6. Changes in the end-use restrictions:

The regulations have retained a “negative list” while introducing highly specific, strategic carve-outs that permit ECB funds to be used for activities that were previously prohibited.

• Infrastructure and Real Estate Exceptions: While speculative real estate is banned, the restrictions have been relaxed for specific development activities:
  1. Construction Development Projects: Permitted subject to strict conditions, such as allowing the sale of plots only after the completion of trunk infrastructure.
  2. Industrial Parks: Permitted subject to minimum unit and allocable area thresholds.
  3. Own-Use and Services: ECB proceeds may be used to purchase land and immovable property for specified own-use acquisitions, and real estate broking services are now permitted.

• Agricultural carve-outs: The regulations introduce detailed definitions for agricultural activities conducted under “controlled conditions,” carving out multiple agricultural activities that are now expressly permitted.
• M&A: ECB proceeds may also be used for transactions in securities undertaken as part of the strategic corporate actions, such as merger, demerger, amalgamation, arrangement or acquisition of control, in accordance with the applicable regulatory framework (i.e., Companies Act 2013, Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016).

 

7. Additional Operational Updates

• Refinancing Deregulation: Refinancing of existing ECBs is permitted provided the original MAMP is complied with. Critically, this is no longer linked to the cost of borrowing of the original loan. Previously, refinancing was permitted only if the new loan was strictly cheaper now, refinancing is permitted for broader strategic reasons.
• Strict NRO to NRO Routing: To ensure strict trailing of funds when individuals are lending, loans disbursed from a Non-Resident Ordinary (NRO) account must be repaid strictly and exclusively back to the lender’s NRO account.
• Retrospective Application for Reporting: While the new borrowing limits apply prospectively, the relaxed, transaction-based reporting framework for ECB-2 is applicable retrospectively to both new and existing Loan Registration Numbers (LRNs).

 

The amendments represent a significant liberalization of the ECB framework, wherein broadening of lender base, simplifying maturity periods, and rationalizing pricing, reduces the friction of cross-border capital flows. Further, the amendments empower Indian entities to leverage global liquidity with unprecedented flexibility. Indian corporates, particularly LLPs and manufacturing units, are now well positioned to structure their offshore debt dynamically in response to global market realities.