India | Publication | October 2025
In an increasingly globalized financial landscape, Indian corporates and financial institutions are progressively turning to overseas markets to meet their capital requirements. External Commercial Borrowing (ECB) loans, i.e. loans raised by eligible Indian entities from recognized non-resident lenders, have emerged as a vital instrument for accessing international funding. The Reserve Bank of India (RBI) regulates ECB loans under the Foreign Exchange Management Act, 1999 (FEMA) and regulations, master directions and circulars issued by it that are updated from time to time.
In this note, we provide an overview of key requirements under the ECB regulatory framework in India.
In October 2025, the RBI issued a press release and draft amendments (Draft Amendments) to the ECB regulations which, once they come into effect, would implement deep structural reforms and significantly liberalise conditions and restrictions applicable to ECB loans. We discuss the impact of these Draft Amendments below as well.
ECB loans can be denominated in freely convertible foreign currencies (e.g. USD, EUR. JPY, GBP, CHF, SGD, AUD and CAD) as well as in Indian rupees (i.e. INR).
In the case of a foreign currency denominated ECB loan, a change of currency from one freely convertible foreign currency to any other freely convertible foreign currency as well as to INR is freely permitted. However in the case of an INR denominated ECB loan, a change of currency from INR to a freely convertible foreign currency is not permitted.
The Draft Amendments allow ECB loans to be raised in foreign currency or INR. Further, change of currency from INR to foreign currency has been permitted.
Under the existing ECB regulations, a recognized lender must be a resident of a country compliant with FATF (Financial Action Task Force) or IOSCO (International Organization of Securities Commissions) standards. Lenders that fall within this category generally include commercial banks operating globally, institutional investors and funds active in global debt markets, multi-lateral financial institutions, such as International Finance Corporation and Asian Development Bank, and export credit agencies (ECAs).
The Draft Amendments seek to modify these requirements to remove the condition of non-resident lenders being from an FATF or IOSCO compliant country. The Draft Amendments would expand the scope of a recognized lender to include all persons (including individuals) resident outside India, or a branch outside India or in an International Financial Services Centre (IFSC) of an entity whose lending business is regulated by the RBI. An IFSC is a designated zone in India that provides financial services to non-residents and residents in foreign currencies. Currently, GIFT City in Gujarat is the only notified IFSC.
Recognized lenders would also include foreign equity holders of the borrower that either directly hold 25% or more equity in the borrower, or that indirectly hold 51% or more equity in the borrower, or a group company with common overseas parent (as long as the equity is not divested during the life of the ECB loan). Such permitted foreign equity holders can include individuals as well.
Foreign branches or subsidiaries of Indian banks are also permitted as recognised lenders under ECB loans denominated in foreign currency (but not where the debt instruments being issued are foreign currency convertible bonds (FCCBs) or foreign currency exchangeable bonds (FCEBs)).
All eligible resident entities in India that are eligible to receive foreign direct investment (FDI) under the Foreign Exchange Management Act can be borrowers under ECB loans. This includes companies that are registered under the Companies Act, 2013, investment vehicles such as infrastructure investment trusts (InvITs) and real estate investment trusts (REITs).
The categories of borrowers of ECB loans also includes special entities recognised by the RBI such as ports, units in special economic zones and the Export-Import Bank of India, as well as sector specific borrowers such as infrastructure and manufacturing companies and non-banking finance companies (NBFCs) that can borrow up to a certain amount of ECB loans per year under the automatic route.
The Draft Amendments seek to simplify the requirements and allow any person resident in India (other than an individual) to be able to avail ECB loans. Entities such as limited liability partnerships and partnerships firms will be able to raise ECB loans, including any other entity registered under the laws of India subject to otherwise being permitted to borrow under applicable laws.
The existing ECB regulations do not set out the purposes for which ECB loans can be made. There is instead a negative list which sets out the purposes for which ECB loans cannot be made. These are:
The Draft Amendments are proposing to liberalise the negative end uses above by aligning these with the FDI policy in India. The Draft Amendments also seek to clarify certain ambiguities on on-lending by licensed NBFCs (irrespective of the end use of such loans), negative end use of real estate (by permitting activities permitted for FDI, which would imply that ECB loans may be availed for construction and development of residential and commercial real estate projects). Additionally, the Draft Amendments also seek to expressly permit end uses of investment in overseas subsidiaries (which we note is also permitted under the existing ECB regulations), mergers, amalgamations, arrangements or acquisitions in accordance with the Companies Act, 2013, the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and Insolvency and Bankruptcy Code, 2016 and investments in primary market instruments issued by non-financial entities for on-lending by statutory corporations for inter-group lending.
Under the existing ECB regulations, all eligible borrowers can raise ECB loans up to US$750 million or equivalent per financial year under the automatic route.
However, if the ECB loans are made by direct foreign equity holders, ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1 (but this requirement does not apply if the aggregate amount of all ECB loans made by such direct equity holder (including the ECB loan proposed to be made) is US$5 million, or its equivalent, or less).
There may also be sector specific guidelines from relevant regulators on debt to equity ratios that borrowers would need to follow.
The Draft Amendments are proposing to further increase the cap on ECB loans that can be raised up to a higher of (x) US$1 billion and (y) an amount that would not result in the total domestic and external borrowings by the eligible borrower to exceed 300% of the net worth of the eligible borrower as per its latest audited balance sheet. Further, the Draft Amendments would disapply these limits where the eligible borrower is regulated by a financial sector regulator.
The all-in-cost ceiling for ECB loans in India is determined by the RBI and includes various components that reflect the total cost of borrowing. The components of all-in-cost are:
Note that the above list does not include commitment fees and withholding tax payable in INR.
ECB loans cannot be used to pay interest or charges (so interest cannot be capitalised), however note that this prohibition does not extend to ECB loans raised for project finance where interest during construction needs to be financed through the ECB loan proceeds as part of project costs. As well, ECB loan proceeds can also be used to pay guarantee fees (including ECA premiums).
The ECB regulations also prescribe that prepayment charges or any default interest for default or breach of covenants should not be more than 2% over and above the contracted rate of interest on the outstanding principal amount of the ECB loans and will be outside the all-in-cost ceiling.
Under the existing ECB regulations, the all-in-cost should be within the ceiling which is prescribed by the RBI at all times. For example, a breach of all-in-cost ceiling in the first year followed by a lower all-in-cost in the second year (so as to comply with the ceiling on average) would not be permitted.
Currently, the all-in-cost ceiling for foreign currency ECB loans is 500 bps above the benchmark and 450 bps for INR denominated ECB loans. As per the ECB regulations, the applicable benchmark is the relevant widely accepted interbank rate or Alternative Reference Rate (ARR) of 6-month tenor applicable to the currency of borrowing (e.g., SOFR for USD, EURIBOR for EUR etc.). For INR denominated ECBs, the benchmark is the then prevailing yield of Government of India securities of corresponding maturity.
As a measure of significant liberalisation, the Draft Amendments are proposing to remove all such all-in-cost ceilings. As per the Draft Amendments the cost of borrowing would be in line with prevailing market conditions (subject to satisfaction of the designated authorised dealer (AD) bank).
The Minimum Average Maturity Period (MAMP) is the minimum duration for which an ECB loan must be held before it can be repaid or prepaid. This regulatory requirement is aimed at reducing the risk of sudden capital outflows which can destabilize the Indian financial system and affect exchange rate stability. It is also a means of ensuring that ECBs are used for genuine business requirements rather than for arbitrage or speculative purposes.
Different uses of ECBs have different MAMPs to ensure that borrowed funds are used for long-term productive purposes. The MAMP for ECB loans is generally 3 years (with a shorter MAMP of 1 year for manufacturing companies for ECBs of up to US$50 million per financial year), however this can vary for certain categories (e.g. if an ECB loan is borrowed for working capital purposes or general corporate purposes, the MAMP is 10 years or if an ECB loan is borrowed for repaying a domestic INR loan that was borrowed for capital expenditure, the MAMP is 7 years).
In a step to further rationalise and simply the regulations, the Draft Amendments propose to apply an MAMP of 3 years irrespective of end use (and for manufacturing companies an MAMP of between 1 year and 3 years). Additionally, the MAMP would be disapplied in the following cases:
The entities raising ECB loans are required to follow the guidelines for hedging (if any) issued by the relevant sector or prudential regulator.
There is currently no mandatory hedging requirement for ECB loans other than in the case of infrastructure companies (this would include project finance loans made to Indian borrowers under the ECB regulations). Infrastructure finance companies are required to mandatorily hedge 70% of their ECB exposure where the average maturity of the ECB loan is less than 5 years. Infrastructure sector borrowers are also required to have a board approved risk management policy in place. The authorised dealer (AD) banks (see below) which are licensed and delegated certain powers by the RBI would verify the hedging and report the position to the RBI.
The following are the key requirements to be followed in the context of hedging under ECB loans:
A natural hedge (i.e. where the cashflows/revenues are in the same currency as the currency of the ECB loan) in lieu of a financial hedging instrument would only be accepted if the offsetting exposure matures (or cashflow are received) within the same accounting year. Any other structures (e.g. where revenues are indexed to foreign currency) do not qualify as a natural hedge.
Refinancing of existing ECB loans by new ECB loans is permitted provided the outstanding maturity of the original borrowing (or weighted outstanding maturity in case of multiple borrowings) is not reduced and the all-in-cost of the new ECB loan(s) is lower than the all-in-cost (or weighted average cost in case of multiple borrowings) of the existing ECB loan(s). Further, refinancing of ECB loans that were raised under older ECB regulations is permitted subject to additionally ensuring that the borrower is eligible to raise ECB loans under the then current ECB framework.
Raising new ECB loans to part refinance existing ECB loans is also permitted subject to the above conditions.
Indian banks are permitted to participate in the refinancing of existing ECBs but only for highly rated corporates and selected public sector undertakings.
The Draft Amendments propose to permit refinancing of an existing ECB loan, in part or full, by a fresh ECB loan, subject to the condition that such refinancing does not result in a failure to meet the MAMP requirement applicable on the original borrowing (or weighted outstanding maturity in case of multiple borrowings) and that the credit spread applicable to the fresh ECB loan is not more than the credit spread applicable to the original borrowing (or weighted average credit spread in case of multiple borrowings).
ECB loans can be raised under the automatic route (without requiring the prior approval of the RBI) if they conform to all the parameters prescribed under the ECB regulations. Alternatively, ECB loans may be under the approval route where the prior approval of the RBI is required to be obtained for purposes of borrowing ECB loans. The borrower may approach the RBI with an application (referred to as Form ECB) for examination through their AD Category I bank.
Authorised Dealer Category-I (AD Category-I) banks in India are commercial banks that have been authorized by the RBI to handle all types of foreign exchange transactions under the FEMA. These banks facilitate ECB loans, handle FDI inflows, process remittances and export/import transactions and ensure compliance with FEMA and RBI regulations.
Any draw-down in respect of an ECB loan can only be made after obtaining a loan registration number (or LRN) from the RBI. To obtain an LRN, borrowers would need to submit a duly certified Form ECB (which also contains terms and conditions of the ECB) to the designated AD Category I bank. The AD Category I bank will forward a copy of the Form ECB to the RBI. Copies of loan agreements are not required to be submitted to the RBI.
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