The Reserve Bank of India issued amendments to the Foreign Exchange Management (Borrowing and Lending) Regulations that rewrite key definitions, introduce a new restriction on the end-use of borrowed funds in India, and replace the External Commercial Borrowing (ECB) framework. The changes take effect on publication in the Official Gazette, with ECBs that already have a Loan Registration Number (LRN) continuing under the previously applicable rules except that reporting must follow the amended regulations. A new Regulation 3A prohibits use of borrowed funds for specified purposes including chit funds, Nidhi companies, real estate business and construction of farmhouses (with additional conditions set for borrowings for construction-development projects and industrial parks), agricultural and animal husbandry activities other than listed exceptions, most plantation activity, trading in transferable development rights, and transacting in listed or unlisted securities other than strategic corporate actions. Borrowed funds also cannot be used to repay domestic INR loans used for a restricted end-use or classified as a non-performing asset, and cannot be on-lent for any restricted purpose. Separately, resident individuals may borrow in INR from a non-resident Indian or an Overseas Citizen of India cardholder relative only if the funds are received by inward remittance or debited from the lender’s NRE, NRO, FCNR(B) or SNRR account, and repayment and interest are made on a non-repatriation basis to the lender’s NRO account. The substituted ECB framework expands and clarifies eligibility and compliance mechanics, including disclosure where a borrower has a pending investigation, adjudication or appeal under the Foreign Exchange Management Act, 1999. It sets a borrowing limit up to the higher of outstanding ECB of USD 1 billion or total outstanding borrowing (external and domestic) of up to 300 percent of net worth (with the limit not applying to borrowers regulated by Indian financial sector regulators), and generally requires a minimum average maturity period of three years, with a manufacturing carve-out allowing one to three years subject to an outstanding cap of USD 150 million. Drawdown remains contingent on obtaining an LRN, proceeds must be parked in prescribed INR or foreign currency accounts within stated timelines pending use, and reporting is structured around Form ECB 1, Revised Form ECB 1 and Form ECB 2 with end-of-month submission deadlines and a late submission fee mechanism; the framework also introduces an “untraceable borrower” trigger after four consecutive quarters of missed returns and requires designated Authorised Dealer Category I banks to inform the Reserve Bank and the Directorate of Enforcement where that status arises after drawdown.
Reserve Bank of India 2026-02-09
Reserve Bank of India overhauls external commercial borrowing framework with new end-use restrictions and USD 1 billion or 300% net worth borrowing limit
The Reserve Bank of India amended the Foreign Exchange Management (Borrowing and Lending) Regulations, introducing a new restriction on the end-use of borrowed funds and replacing the External Commercial Borrowing (ECB) framework. Key changes include prohibitions on using borrowed funds for specific purposes, expanded eligibility and compliance mechanics, and a borrowing limit tied to net worth. The amendments also detail reporting requirements and introduce an "untraceable borrower" trigger for non-compliance.