The Reserve Bank of India (RBI) has released its draft Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025 (draft regulations) for public comment. They signal a significant shift from a rule-bound approach to a more risk-based and market-driven framework for external commercial borrowing (ECB). The key changes include the existing annual borrowing cap of USD750 million being replaced with a dynamic limit. This is the higher of outstanding ECBs up to USD1 billion or total outstanding borrowings, domestic and external, up to 300% of the borrower’s net worth according to its last audited balance sheet. The draft regulations propose removing prescriptive all-in-cost ceilings. Instead, the cost of borrowing, including prepayment charges and penal interest, will be determined by prevailing market conditions, subject to the acceptance of the designated category-I bank as an authorised dealer (AD).
Nishtha Arora
Associate partner
SNG & Partners
Any entity, bar an individual, resident in India and incorporated, established or registered under Indian law, may raise both foreign currency and rupee-denominated ECBs. This decouples ECB eligibility from foreign direct investment (FDI) norms, simplifying entry requirements. Entities undergoing restructuring or corporate insolvency resolution processes may raise ECBs if the restructuring scheme or resolution plan permits.
The necessity for an ECB lender to be a resident of a FATF- or IOSCO-compliant country is removed. Any person resident outside India, as well as foreign branches or IFSC-based branches of RBI-regulated entities engaged in lending activities, may act as a recognised lender.
End-use restrictions will be simplified. On-lending of ECB proceeds by RBI-regulated entities is permitted, as well as by companies or statutory bodies to their group entities. However, on-lending for prohibited end-uses or to borrowers not eligible under the ECB framework is not allowed. The cost of borrowing cannot be funded from ECB proceeds.
ECB proceeds may be used for investments in mergers, acquisitions and takeovers in accordance with applicable Securities and Exchange Board of India and company laws. Funds for agricultural and plantation activities, real estate businesses and the building of farmhouses is still prohibited, except in activities and sectors permitted for FDI.
Kartikeya Rao
Associate
SNG & Partners
Existing prescriptive minimum average maturity periods (MAMP) of three, five, seven and 10 years for ECBs based on end-use will be replaced with a uniform MAMP of three years. A shorter MAMP of one to three years is allowed for borrowers in the manufacturing sector. MAMP requirements will not apply in certain circumstances, such as the conversion of ECBs into non-debt instruments, repayments from the proceeds of a fresh equity issuance and debt waivers by lenders.
ECBs may be raised in any currency, and borrowers can convert borrowings from one currency to another during the loan.
Reporting form ECB-2 submissions will be linked to actual cash flows, drawdowns and debt servicing, rather than rote monthly reporting. Submissions may now be made within 30 calendar days from the date of the relevant cash flow, rather than seven working days from the end of the month. Similarly, submissions of revised Form ECB may be made up to 30 calendar days from the transaction date.
When ECBs come from related parties, group entities or other connected lenders, borrowing must be at arm’s-length.
The amendments are forward-looking, aligning the ECB framework with global best practice and liberalising access to offshore capital. Market-determined pricing and borrowing capacity linked to net worth will give companies greater financial autonomy and flexibility. Expanding the eligible lender and borrower base to include companies involved in insolvency proceedings is a pragmatic move that will provide a crucial funding lifeline for stressed assets. This will improve the effectiveness of the Insolvency and Bankruptcy Code, 2016 resolution process. The role of AD category-I banks will be more critical in ensuring that borrowing costs align with market conditions. They will also conduct due diligence on a wider range of lenders.
The draft regulations should significantly liberalise the ECB landscape. A principle-based regime will reduce regulatory friction, lower borrowing costs for creditworthy entities and boost foreign debt investment.
Nishtha Arora is an associate partner and Kartikeya Rao is an associate at SNG & Partners
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