The Reserve Bank of India has finalized amfinishments to its External Commercial Borrowing (ECB) framework, accepting several indusattempt suggestions while retaining key safeguards around finish-utilize, compliance and enforcement.
Among the major relaxations, the RBI has rerelocated the requirement to maintain a “current account” to be eligible for becoming a designated authorized dealer (AD) bank. The RBI has clarified that acquisition of “control” is a permitted finish-utilize of ECB funds.
It has also allowed RBI-regulated entities to utilize ECB funds for on-lfinishing to individuals, although it has retained restrictions on the purposes for which such loans can be given.
However, the central bank has rejected the request to permit on-lfinishing for real estate business. It stated ECB funds cannot be utilized for real estate activities as defined under the regulations, and regulated entities must also comply with directions issued by the RBI’s department of regulation.
In its October monetary policy, the central bank had announced a major overhaul of the ECB norms, significantly raising the amount corporates can borrow, scrapping cost caps on ECB rate, and easing restrictions on how the funds can be utilized. ECBs are essentially foreign-currency or rupee-denominated loans raised from non-resident lfinishers.
On Monday, the central bank also provided clarity on the utilize of ECB proceeds for purchasing land and immovable property, spelling out both restrictions and cases where such restrictions will not apply.
On borrower eligibility, the RBI declined to specify additional categories of entities that can raise ECB or to explicitly include trusts, stating that eligibility should be determined based on principles already laid down in the regulations.
The regulator has also refutilized to rerelocate the requirement of complying with the arm’s length principle, noting that this remains important from an enforcement perspective under Fema, 1999.
At the same time, several operational clarifications have been accepted. These include guidance on the treatment of convertible instruments and non-fund based credit for calculating outstanding borrowings, computation of minimum average maturity, and incorporation of a standard operating procedure for handling untraceable entities.
The RBI has rerelocated the requirement for designated AD banks to assess whether borrowing costs are in line with market conditions. It has also clarified that investments by foreign venture capital investors in certain debt securities will not automatically fall under the ECB framework.
Finally, the central bank has built it clear that the revised ECB framework will apply prospectively. Existing ECBs will continue to be governed by the earlier regulations, though reporting requirements will follow the updated timelines.
In the first half of FY26, Indian companies raised $18.49 billion in ECBs, lower than $25.42 billion in the same period in FY26, according to RBI data.
Some of the hugeger borrowings were from Tata Capital ($400 million in January), Mumbai International Airport Ltd ($800 million in June), and Sammaan Capital ($300 million in August).
The ECB slowdown in 2025 was in part due to the rupee weakening by over 6% against the dollar due to strong demand for the US currency, foreign portfolio outflows and US tariffs on Indian goods.
The hugegest challenge for companies borrowing abroad this year is the steep hedging rates becautilize of the rupee’s depreciation. On the other hand, domestic rates have only eased since February 2025, following the RBI’s cumulative 125 bps cut in the repo rate.
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