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Informist, Monday, Feb. 16, 2026

 

--RBI issues amended FX management borrowing and lending norms 

--RBI: Expanded borrower, lender base for external commercial borrowing 

--RBI: Removed borrowing cost restriction for external commercial borrowing 

--RBI: Simplified reporting requirements on external commercial borrowing 

 

NEW DELHI – The Reserve Bank of India Monday amended its regulations on borrowing and lending in foreign exchange. With this, the regulator has expanded the base of eligible borrowers and recognised lenders for external commercial borrowing, the RBI said in a release.

 

Among the rationalisations in the framework, the central bank has done away with restrictions on the cost of borrowing for external commercial borrowings. The RBI also reviewed some end-use restrictions and simplified reporting requirements, the release said. The new norms also rationalise borrowing limits and restrictions on the average maturity period of the overseas loan.

 

The final directions were published in the official Gazette on Monday and come into force immediately. The RBI had floated a draft on these norms for feedback on Oct. 3. 

 

External commercial borrowing cannot be used for chit funds, Nidhi companies, real estate businesses and the agricultural sector with some exceptions, and plantations. Externally raised funds cannot be used for trade in transferable development rights or listed and unlisted securities, with the latter having an exception for strategic investments. The RBI has allowed external funding for transactions undertaken by an Indian entity for corporate actions such as mergers and stake purchases in line with other regulatory norms.

 

Moreover, external commercial borrowings cannot be used to repay a loan or on-lending for any restricted purposes under the new directions. Such borrowings also cannot be used to pay back a domestic rupee-denominated loan which is classified as a non-performing asset, the RBI said.

 

An individual can take a rupee-denominated loan from a non-resident Indian or a resident who is an overseas citizen of India to use domestically. The loan must be received as an inward remittance or by a debit to a foreign currency account of the lender. The borrowing will be on a non-repatriation basis, the regulator said. 

 

Any resident non-individual entity incorporated, established or registered domestically is an eligible borrower provided the laws under which it is registered allow external commercial borrowing. Companies under a restructuring scheme or corporate insolvency can only raise funds from outside India if specifically permitted under those schemes. Eligible borrowers may still borrow externally if they are under investigation, adjudication or legal appeal provided they declare the borrowing.

 

Persons resident outside India are recognised as lenders by the central bank. Even RBI-regulated entities with branches outside India count as lenders, as do financial institutions or their branches set up in the International Financial Services Centre. 

 

Eligible borrowers may raise external commercial borrowing in any foreign currency or in rupees. The currency of the borrowing can change in any mode – either between different foreign currencies, between the foreign currency and the rupee, or vice versa. However, the currency conversion when transacted should not raise a larger liability than at the date of the agreement, the RBI said.

 

Trade credit of up to three years will not be counted as an external commercial borrowing and neither would export advances, the RBI said. Investments received in terms of debt instruments regulations, convertible notes under terms of non-debt regulations, and debt investments received from foreign venture capital investors will also not count under the new norms.

 

The limit for eligible borrowers through external commercial borrowing is the higher of $1 billion or when their total outstanding borrowing, domestic and external, rises to 300% of their net worth according to the latest audited standalone financials, the new norms said. These limits are not eligible for borrowers who are regulated by financial sector regulators, the RBI said. 

 

"The proposed ECB (other than ECB for refinancing) shall be taken into consideration while checking for compliance with the borrowing limit," the RBI said.

 

The minimum average maturity period of a fresh external commercial borrowing must be three years. Manufacturing companies can trim this to between one and three years for up to $150 million of loans. Call and put options cannot be exercised before the minimum period. However, this period is not valid if the borrowing is converted or repaid under non-debt instruments directions given by the RBI. Exceptions of the minimum period also include refinance and debt waivers by the lender, as well as for early repayments if required for corporate activities such as closure or mergers. 

 

Proceeds from an external borrowing must be transferred to a rupee account if intended to be used in the rupee, no later than one month from receiving the external loan, after which the funds can be parked in a fixed deposit of up to one year until utilisation. Foreign currency loans must follow the same procedure in foreign currency accounts. These external commercial borrowings may be secured, refinanced or converted into non-debt instruments. 

 

Borrowing costs and penal charges must both be in line with prevailing market conditions, the regulations said. "In case of eligible ECBs with average maturity period of less than three years, the cost of borrowing shall be in compliance with cost ceiling specified for Trade Credit under these regulations," the RBI said. "In the case of fixed rate loans, the floating rate plus spread of the corresponding swap shall not be more than the ceiling."

 

Repayments of such borrowings can be remitted externally except for loans made through Non-Resident Ordinary accounts, which must be paid back into those. Borrowers must also report such loans to their designated authorised dealer category – I banks in the RBI-prescribed format, the central bank said.  End

 

US$1 = INR 90.65

 

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

 

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