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Informist, Friday, Oct. 3, 2025

MUMBAI – The Reserve Bank of India Friday released the draft regulations for amendment in the external commercial borrowing framework under Foreign Exchange Management Regulations, on its website. The norms were proposed after the outcome of the monetary policy committee meeting on Wednesday.

The new regulation explicitly lists prohibited end-uses for borrowed funds. The RBI said overseas loans cannot be diverted into speculative or high-risk businesses like chit funds, Nidhi companies, real estate trading, or agricultural activities that aren't open to foreign investment. Similarly, borrowers cannot channel these funds into buying securities or engaging in risky trades except under specific, regulated circumstances like mergers, acquisitions, or overseas investments already permitted under existing rules. Even on-lending--passing on borrowed funds to other entities--is restricted to tightly controlled scenarios, such as lending within a regulated group structure or through entities already monitored by the RBI.

Eligible borrowers include Indian companies, limited liability partnerships, and institutions formed under central or state law, though individuals remain excluded. Interestingly, even companies under insolvency or restructuring may raise external commercial borrowings, provided their resolution plan explicitly allows it.

The framework also broadens the pool of recognised lenders. Borrowings can come from overseas entities, or even from Indian banks' foreign branches and IFSC-based entities regulated by the RBI. Currencies of borrowing are flexible, with provisions to switch between rupee and foreign currencies depending on market conditions.

When it comes to limits, borrowers can raise up to $1 billion, or up to 300% of their net worth, whichever is higher. However, financial sector entities like banks and non-bank finance companies, already under regulatory oversight, are exempt from this cap.

Loans must have a minimum average maturity period of three years, though manufacturers get some flexibility to borrow for as little as one year, capped at $50 million. The RBI has also made clear that costs of borrowing--including interest, fees, and charges--must remain aligned with market rates and cannot be paid out of borrowed proceeds themselves.

The RBI has also eased reporting requirements to simplify compliance obligations. Feedback on the regulations may be submitted to the RBI by Oct. 24, it said.  End

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

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