Where the rules now sit
RBI's Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Notification No. FEMA 3(R)(5)/2026-RB, dated 9 February 2026) were published in the Official Gazette on 16 February 2026 and took effect that day. They replace Schedule I of the 2018 Regulations with a new ECB framework and add a regulation 3A on end-use. By A.P. (DIR Series) Circular No. 22 of the same date, RBI deleted the ECB paragraphs (paras 1 to 12) of its Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations. The trade credit part of that Master Direction remains.
ECBs that obtained a Loan Registration Number (LRN) before the amendment continue under the earlier rules, except that reporting follows the new regulations.
Who may borrow and who may lend
Recognised lenders (Schedule I, para 2) are:
- a person resident outside India;
- a branch outside India of an entity whose lending business is regulated by RBI; and
- a financial institution or a branch of a financial institution set up in an IFSC, with "financial institution" taking its meaning from the FEMA (IFSC) Regulations, 2015.
Eligible borrowers (para 1) are persons resident in India, other than individuals, incorporated, established or registered under a Central or State Act, and permitted to raise ECB under the Acts that govern them. A borrower under a restructuring scheme or insolvency resolution process may borrow only if the plan permits it. A borrower facing a pending investigation, adjudication or appeal for a FEMA contravention may still borrow, but must disclose it in Form ECB 1.
Main terms of the framework
| Parameter | Rule (Schedule I unless stated) |
|---|---|
| Currency | Foreign currency or Indian rupees; currency may be changed later |
| Form | Any commercial borrowing with agreed interest and repayment of principal, including FCCBs and FCEBs. Non-convertible preference shares or debentures issued to non-residents count as ECB |
| Borrowing limit | Higher of outstanding ECB up to USD 1 billion, or total outstanding borrowing up to 300 per cent of net worth on the last audited standalone balance sheet. Not applicable to borrowers regulated by financial sector regulators |
| Maturity | Minimum average maturity of three years. Manufacturing borrowers may borrow for one to three years, up to USD 150 million outstanding |
| Cost | In line with prevailing market conditions. ECB with average maturity under three years must meet the trade credit cost ceiling |
| Related parties | Arm's length basis |
| End-use | Not for chit funds, Nidhi companies, real estate business, most agriculture and plantations, trading in transferable development rights, or dealing in securities except specified corporate actions; not to repay certain domestic loans or for on-lending to restricted uses (regulation 3A) |
| Drawdown | Only after the LRN is obtained from RBI through the designated AD Category I bank |
| Security | Charge on immovable, movable, financial or intangible assets, or guarantees under the FEMA (Guarantees) Regulations, 2026, with NOCs from existing Indian lenders where needed |
Reporting
- Form ECB 1 to obtain the LRN.
- Revised Form ECB 1 within seven calendar days from the end of the month in which a change to reported parameters takes effect.
- Form ECB 2 within seven calendar days from the end of the month in which proceeds are received or debt is serviced.
Late reporting can be regularised by paying a late submission fee. A borrower with an active LRN that misses returns for four consecutive quarters, and cannot be reached, is treated as untraceable and reported to RBI and the Directorate of Enforcement.
Trade credit
Credit for imports into India with an original maturity of up to three years is trade credit, not ECB. Under Part II of the Master Direction (updated as on 8 September 2026), financial institutions in IFSCs are recognised lenders for buyers' credit. Participation of Indian banks and non-banking financial companies operating from IFSCs as lenders is subject to RBI's prudential guidelines. The automatic route allows up to USD 150 million per import transaction for oil and gas refining and marketing, airline and shipping companies, and up to USD 50 million for others. Trade credit for capital goods may run up to three years from shipment; for non-capital goods, up to one year or the operating cycle, whichever is less.
The lender's side
- Regulation. The IFSC lender is regulated by IFSCA under its banking or finance company framework. See banking and finance companies.
- Currency. The lender itself does business in the foreign currencies its regulator allows (regulation 4 of the FEMA (IFSC) Regulations). A rupee-denominated loan from an IFSC lender needs a clear permission on the lender's side as well as the borrower's. See the rupee interface.
- Withholding tax. CBDT Notification No. 80/2026 removes tax deduction at source on interest on external commercial borrowings or loans paid to IFSC banking units, finance companies and finance units, once the unit gives the payer Form No. 1(N). See TDS relief.
- Documentation. Build the borrower's ECB conditions into the facility: eligibility and end-use representations, no drawdown before the LRN, and a covenant to file Forms ECB 1 and ECB 2 on time.