What Happened
- The Reserve Bank of India notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, overhauling India's External Commercial Borrowing (ECB) framework.
- The individual borrowing limit under the automatic route has been raised from USD 750 million to the higher of USD 1 billion in outstanding borrowings or 300% of net worth.
- The all-in cost ceiling (spread cap) on ECBs has been removed, allowing borrowing costs to align with prevailing market conditions.
- RBI-regulated entities are now permitted to on-lend ECB funds to individuals, though on-lending for real estate business remains prohibited.
- The requirement for a borrower to maintain a current account with the designated Authorised Dealer bank has been dropped.
- Manufacturing companies can now access short-term ECBs of up to USD 150 million with maturities between one and three years, as well as trade credit up to USD 50 million.
Static Topic Bridges
External Commercial Borrowings (ECB) Framework Under FEMA
ECBs are commercial loans raised by eligible Indian resident entities from recognised non-resident lenders. They are governed by the Foreign Exchange Management Act, 1999 and regulated by the RBI. The ECB framework specifies eligible borrowers, recognised lenders, minimum average maturity periods, end-use restrictions, and reporting requirements. Under the automatic route, borrowers do not require prior RBI approval if they meet all prescribed conditions; the approval route applies when parameters fall outside these norms.
- Governed by FEMA, 1999 and RBI Master Directions
- Two tracks: Automatic Route (no prior approval) and Approval Route
- Eligible borrowers include companies, NBFCs, SEZ units, startups, port trusts, and RBI-regulated entities
- Recognised lenders must be residents of FATF or IOSCO-compliant jurisdictions
- Minimum Average Maturity Period (MAMP) is generally 3 years; reduced to 1 year for certain manufacturing borrowings
- All ECBs require a Loan Registration Number (LRN) from RBI before drawdown
Connection to this news: The 2026 amendment rationalises the ECB regime by expanding the borrower and lender base, raising borrowing limits, and removing the cost ceiling, marking the most significant liberalisation of ECB norms in over a decade.
Capital Account Convertibility in India
Capital account convertibility refers to the freedom to convert local financial assets into foreign financial assets and vice versa at market-determined exchange rates. India follows a calibrated approach to capital account liberalisation, permitting free flows for current account transactions (under Article VIII of the IMF) while maintaining restrictions on capital account transactions. The Tarapore Committee (1997 and 2006) recommended a phased approach contingent on fiscal consolidation, inflation control, and financial sector strengthening.
- Current account fully convertible since 1994 under Article VIII of the IMF
- Capital account is partially convertible; FDI is largely liberalised while ECBs remain regulated
- RBI uses ECB norms as a tool to manage external debt composition and forex volatility
- India's external debt stood at approximately USD 717 billion as of September 2025
- ECBs constitute about 36% of India's total external debt
Connection to this news: The easing of ECB norms represents a further step toward greater capital account openness, reflecting RBI's confidence in India's external sector resilience while retaining safeguards against excessive foreign currency exposure.
On-Lending and Financial Intermediation
On-lending refers to the practice where a financial institution borrows funds from one source and lends them to end-borrowers. In the context of ECBs, eligible entities like banks and NBFCs raise foreign currency loans and channel them to domestic borrowers who may not directly access overseas markets. This mechanism expands credit availability, particularly for MSMEs and individuals, but also carries risks related to currency mismatch and pass-through of foreign exchange volatility.
- Previously, on-lending of ECB proceeds was restricted to specific sectors (housing, MSMEs, agriculture)
- RBI-regulated entities (banks, NBFCs, HFCs) are the primary on-lenders
- On-lending to real estate business remains explicitly prohibited under the new framework
- Currency hedging and maturity matching become critical risk management considerations
Connection to this news: The new provision allowing on-lending to individuals could broaden access to competitively priced credit, especially in housing and consumption finance, while the real estate exclusion reflects ongoing prudential concerns about speculative lending.
Key Facts & Data
- New individual borrowing limit: higher of USD 1 billion or 300% of net worth (up from USD 750 million)
- All-in cost ceiling on ECBs: removed entirely
- Minimum Average Maturity Period: 3 years (general); 1-3 years for manufacturing up to USD 150 million
- Manufacturing short-term trade credit: up to USD 50 million
- Amended regulations apply prospectively from date of notification
- Draft regulations were first issued in October 2025; final regulations incorporate stakeholder feedback
- India's external debt: approximately USD 717 billion (September 2025)