RBI’s ECB framework amendment to ease cost and maturity norms

Mumbai: The Reserve Bank of India (RBI) on Monday notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, introducing a series of changes to the external commercial borrowing (ECB) framework.

The amended regulations, as per an RBI release, seek to rationalise the ECB regime through expansion of the eligible borrower and recognised lender base, rationalisation of borrowing limits and restrictions on average maturity, removal of restrictions on the cost of borrowing for ECBs, a review of end-use restrictions, and simplification of reporting requirements.

The RBI said the regulations were finalised after examining feedback received from stakeholders on the draft framework released on October 3, 2025. It has also published its response to major comments received, annexed to the notification.

Talking to Bizz Buzz, Venkatakrishnan Srinivasan,Managing Partner of RockfortFincap says, “RBI has amended the ECB regulations in February 2026 and updated the Master Direction accordingly.”

ECB proceeds can no longer be used for real estate business (except properly structured development projects meeting specified conditions), TDR trading, chit funds, Nidhi companies, most plantation activities, and investment in shares or securities.

However, securities-related transactions are permitted where they are undertaken for recognised strategic corporate actions such as merger, amalgamation, arrangement, acquisition of control, takeover, or resolution under IBC, as specifically provided in the regulation.

The regulation also clarifies that such borrowing must be for strategic purposes aimed at long-term value creation and potential synergy, and not for short-term gains.

Importantly, ECB cannot be used to repay rupee loans that are classified as NPAs or were originally taken for restricted purposes.

On-lending for such prohibited activities is also not permitted.In practical terms, this significantly restricts the use of offshore borrowing for evergreening stressed domestic loans or for financial layering structures.

The borrowing limit is the higher of $1 billion or 300% of net worth. The standard minimum average maturity is at three years, with the existing relaxation for manufacturing entities. Trade Credit rules are broadly unchanged.

Compliance expectations have clearly tightened. If a borrower fails to report for four consecutive quarters and the AD bank cannot establish proper operational presence, the matter can be escalated to RBI and potentially to enforcement authorities.