Reserve Bank of India notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026

Reserve Bank of India (RBI) notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026.

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¨     The amendment revises the External Commercial Borrowing (ECB) framework under FEMA to rationalise limits, strengthen monitoring, and align the rules with evolving global financing practices.

¨     The amendment introduces structural changes to the ECB regime under the Foreign Exchange Management Act (FEMA), 1999.

¨     External Commercial Borrowing (ECB) refers to commercial loans raised by eligible Indian entities from recognized non-resident lenders.

¨     The revised regulations were finalised after stakeholder consultations on the draft released in October 2025.

¨     Existing ECBs will continue under the earlier framework, but reporting must follow the new compliance norms.

Key Highlights of the Amendment

¨     Expanded Eligible Borrowers and Lenders: Any non-individual resident entity incorporated under Indian law can raise ECB from recognised overseas lenders, including IFSC-based institutions.

¨     Revised Borrowing Limits: ECB borrowing is capped at the higher of USD 1 billion or 300% of net worth, with exemptions for regulated financial entities.

¨     Minimum Average Maturity Period (MAMP): The standard MAMP is 3 years, while manufacturing entities can access shorter maturities (1–3 years) within prescribed limits.

¨     Cost of Borrowing Liberalised: Borrowing costs are largely market-determined, with ceilings only for very short-term loans and arm’s-length pricing for related-party ECBs.

¨     Currency Flexibility: ECBs can be raised in foreign currency or INR, with permitted currency conversion under safeguards.

¨     End-Use Restrictions Strengthened: ECB proceeds cannot be used for activities like real estate, chit funds, capital markets, certain agriculture uses, NPA-linked refinancing, or prohibited on-lending.

¨     Reporting and Compliance Reforms: Updated reporting mandates include ECB-1/ECB-2 filings, stricter timelines, late submission fees, and new compliance disclosures.

¨     Treatment of ECB Proceeds: ECB funds must flow through designated AD banks and can be temporarily parked in approved short-term instruments until use.

Significance of the Amendment

¨     Rationalisation of ECB Framework: The amendment simplifies borrowing limits and eligibility, making the framework more transparent and rules-based.

¨     Improved Access to Global Capital: A wide borrower and lender base enhances access to overseas funds and boosts capital inflows.

¨     Stronger Regulatory Oversight: Tighter end-use restrictions and improved reporting strengthen prudential supervision.

¨     Support to Manufacturing and Infrastructure: Relaxed maturity norms encourage long-term investment in the productive sector.

¨     Prevention of Financial Misuse: Curbs on NPA refinancing and speculative uses reduce regulatory arbitrage and evergreening.