External Commercial Borrowings (ECB) guidelines are proposed to be revamped by the Reserve Bank of India (RBI). The draft amendment regulations have been released by the RBI for public comments in an effort to enhance access to potential avenues of overseas fundraising and to explore untapped segments of external borrowing. The proposed amendments aim to broaden the eligible borrowers and lender base while simultaneously enhancing fundraising thresholds from previously permitted lender categories.

Some of the key changes proposed by the RBI are outlined below:

1. Eligible Borrowers:

The draft regulation widens the definition of eligible borrowers.

It includes Indian entities (excluding individuals) incorporated under Central or State law, that is, any registered body may raise ECB, provided they are legally permitted to borrow.

Entities under a restructuring scheme or insolvency resolution process may raise ECB if specifically allowed in the restructuring/resolutions plan. Further, entities under investigation or legal proceedings for regulatory violations may still raise ECB, subject to necessary disclosures to their Authorized Dealer (AD) bank.

Presently, only entities eligible to receive Foreign Direct Investment (FDI) were permitted to raise ECB, along with select institutions such as Port Trusts, Special Economic Zone (SEZ) units, SIDBI, and the Export-Import Bank of India etc.

2. Eligible Lenders:

Under the proposed ECB framework, eligible borrowers can raise ECB from any person resident outside India.

Further, a branch outside India or in the IFSC of an entity whose lending business is regulated by the Reserve Bank can lend to the eligible borrowers in India.

Under the existing regime, only select institutions such as international banks, foreign commercial banks, multilateral and regional financial institutions of which India is a member, foreign branches or subsidiaries of Indian banks, and foreign equity holders satisfying specified equity thresholds are categorized as eligible lenders.

3. Borrowing Limits:

As per the proposed draft regulation, an eligible borrower may raise ECB up to the higher of

(a) outstanding ECB up to USD 1 billion; or

(b) total outstanding borrowing (external and domestic) up to 300 percent of net worth as per the last audited balance sheet

as against a cap of USD 750 million or equivalent per financial year in the existing regime.

4. Cost of Borrowing:

The proposed amendments suggest aligning the cost of borrowing with prevailing market conditions, subject to the approval of the designated AD Category I bank, thereby replacing the existing all-in-cost ceiling under the current framework.

5. Simplified reporting:

Under the proposed framework, event-based reporting is mandated, such as the filing of an application in ‘Form ECB’ for obtaining a Loan Registration Number (LRN), the filing of ‘Form ECB-2’ for reporting drawdown and servicing, and the filing of ‘Revised Form ECB’ for reporting changes in the ECB parameters as reported in Form ECB.

6. Currency:

ECB can be raised in foreign currency or in INR, and currency changes between INR and foreign currency will be allowed, subject to exchange rate conditions.

As evident from above, the proposed amendments to the ECB framework signify a shift towards a more flexible and market-aligned borrowing environment. This liberalization is expected to be beneficial for capital-intensive sectors such as infrastructure and manufacturing, which require substantial funding to fund for their growth and innovation. Further, these changes aim to further liberalize and streamline the ECB framework to align with evolving market dynamics and the financing needs of the economy.

*The RBI has invited public comments on the proposed draft ECB framework until 24 October 2025. These proposed revisions remain under review by the authorities, we will notify you upon their formal adoption.

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