Cassels Brock
MONTH-IN-BRIEF (Jun 2026)
Reserve Bank of India Notifies Structural Consolidation and Liberalization of External Commercial Borrowing Framework
By Siddartha Karnani, King Stubb & Kasiva
On February 9, 2026, the Reserve Bank of India has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Notification No. FEMA 3(R)(5)/2026-RB), which came into force upon publication in the Official Gazette on February 16, 2026. The amended Regulations represent the most comprehensive overhaul of India’s External Commercial Borrowing (“ECB”) framework in years, consolidating all ECB-related provisions previously scattered across the Master Direction on ECBs, Trade Credits and Structured Obligations and the Master Direction on Borrowing and Lending in Indian Rupee into a single, revised Schedule I of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.
The revisions touch every major dimension of the ECB regime. ECBs are loans and credit facilities raised by eligible resident borrowers in India from recognized non-resident lenders, and have historically been subject to extensive regulatory oversight. On pricing, the long-standing all-in cost ceiling of benchmark rate plus 500 basis points has been removed; the cost of borrowing, including prepayment charges and penal interest, is now market-determined, subject to acceptance by a designated Authorized Dealer (“AD”) Category I bank (commercial banks in India authorized to handle foreign exchange transactions). On the loan term, the minimum average maturity period has been standardized at three years across all end uses, replacing a tiered structure under which some end uses required a minimum term of up to ten years. On borrower and lender eligibility, the base has been expanded: Any entity resident in India, other than an individual, that is incorporated, established, or registered under any Central or State Act and permitted to raise ECBs under applicable law may now do so; and entities undergoing insolvency proceedings are expressly included as eligible borrowers, a deliberate linkage to the Insolvency and Bankruptcy Code, 2016 resolution framework.
