The Reserve Bank of India has revised the External Commercial Borrowings (ECB) framework under Schedule I of the Foreign Exchange Management (Borrowing and Lending) Regulations. The revised framework introduces significant changes aimed at simplifying cross-border borrowing rules, expanding borrower eligibility, increasing borrowing limits, and providing greater flexibility in structuring ECB transactions.
The following FAQs address the key regulatory changes and their practical implications for borrowers and lenders.
1. Who is eligible to raise ECB under the revised framework?
Under the revised framework, any person resident in India (other than individuals) that is incorporated, established or registered under a Central or State Act is eligible to raise External Commercial Borrowings, provided such borrowing is permitted under the applicable laws governing that entity.
Entities undergoing restructuring or corporate insolvency resolution process (CIRP) may also raise ECB where such borrowing is specifically permitted under the restructuring or resolution plan.
Further, a person against whom investigation, adjudication, or appeal proceedings are pending under FEMA or related regulations may still qualify as an eligible borrower, provided that details of such proceedings are disclosed in Form ECB-1.
2. Which activities/ end use shall be restricted for ECB?
Under the earlier ECB framework, only entities eligible to receive Foreign Direct Investment (FDI) were permitted to raise ECB. The revised framework removes this restriction, thereby broadening the category of eligible borrowers.
The revised framework also aligns the end-use principles broadly with paragraph 2 of Schedule I to the FEMA (Non-Debt Instruments) Rules, subject to certain restrictions.
ECB (Reg. 3A) vs NDI Rules –Prohibition Comparison Table
| Sector / Activity | ECB (Borrowing & Lending Reg. – Restriction on end use) | NDI Rules (FDI Prohibited Sectors) |
| Lottery business | Not expressly restricted | ❌ Prohibited (includes online lotteries, etc.) |
| Gambling / Betting / Casinos | Not expressly restricted | ❌ Prohibited |
| Chit funds | ❌ Prohibited | ❌ Prohibited |
| Nidhi company | ❌ Prohibited | ❌ Prohibited |
| Real estate business / construction of farm houses | ❌ Prohibited ✔ Exception: Construction-development projects allowed subject to trunk infrastructure conditions ✔ Industrial parks allowed subject to conditions (min. 10 units, 66% industrial use, etc.) | ❌ Prohibited ✔ Exception (broad): Development of townships, construction of residential/commercial premises, infrastructure, REITs, leasing income etc. are not treated as “real estate business” |
| Agriculture & animal husbandry | ❌ Prohibited ✔ Exceptions: Controlled environment agriculture, seeds, allied services, pisciculture, aquaculture, apiculture, allied services etc. | Not in prohibited list → Permitted subject to sectoral conditions under FDI policy |
| Plantation sector | ❌ Prohibited ✔ Exception: Tea, coffee, rubber, cardamom, palm oil, olive oil | Not prohibited → Permitted with conditions under FDI policy |
| Trading in Transferable Development Rights (TDR) | ❌ Prohibited | ❌ Prohibited |
| Investment / dealing in securities | ❌ Prohibited ✔ Exception: Strategic transactions (merger, demerger, acquisition, IBC, SARFAESI, etc.) | FDI allowed subject to sectoral caps/conditions |
| Tobacco (cigars, cigarettes etc.) | Not expressly restricted | ❌ Prohibited |
| Activities not open to private sector (e.g., atomic energy, railway operations) | Not expressly restricted | ❌ Prohibited |
| On-lending for prohibited purposes | ❌ Prohibited (explicitly restricted) | NA |
| Repayment of domestic loan (linked to restricted use / NPA) | ❌ Prohibited | Not specifically covered |
| Foreign technology collaboration in prohibited sectors | Not covered | ❌ Prohibited (for lottery & gambling sectors) |
3. Who qualifies as a recognised lender under the revised ECB framework?
The revised framework recognises the following categories of lenders:
- a person resident outside India;
- a branch outside India of an entity whose lending business is regulated by the Reserve Bank of India; and
- a financial institution or a branch of a financial institution established in an International Financial Services Centre (IFSC).
Under the earlier framework, lenders were generally required to be residents of International Organisation of Securities Commissions (IOSCO) or Financial Action Task Force (FATF) compliant jurisdictions. The revised framework removes this requirement, thereby expanding the scope of potential lenders.
4. Can foreign branches or subsidiaries of Indian banks lend ECB in Indian Rupees?
Under the earlier ECB framework, foreign branches or subsidiaries of Indian banks were permitted to lend ECB only in foreign currency.
The revised framework no longer imposes such restriction. Accordingly, foreign branches or subsidiaries of Indian banks may now extend ECB denominated in Indian Rupees, thereby providing additional flexibility in structuring cross-border financing.
5. In what currency can ECB be raised?
Under the revised framework, ECB may be raised in foreign currency (FCY) or Indian Rupees (INR).
This position is consistent with the earlier framework; however, the revised regulations provide greater flexibility regarding conversion of the currency of borrowing during the tenure of the loan.
6. Can the currency of ECB be changed during the life of the borrowing?
Yes. The revised framework permits conversion of the currency of borrowing, including:
- from one foreign currency to another foreign currency;
- from foreign currency to INR; and
- from INR to foreign currency.
Under the earlier ECB regime, conversion from INR to foreign currency was not permitted. The revised framework therefore provides greater flexibility in managing currency exposure.
7. Which transactions are not treated as ECB?
The revised framework clarifies that the following transactions do not constitute ECB:
- trade credit with original maturity up to three years;
- export advances received under FEMA Export Regulations;
- investments received under the FEMA (Debt Instruments) Regulations, 2019;
- investments through convertible notes issued under the FEMA (Non-Debt Instruments) Rules, 2019; and
- debt investments made by Foreign Venture Capital Investors (FVCIs) under the FEMA (Non-Debt Instruments) Rules.
This clarification provides greater certainty regarding the classification of cross-border funding structures.
8. What are the borrowing limits under the revised ECB framework?
Under the earlier ECB framework, borrowers could raise ECB up to USD 750 million (or equivalent) per financial year.
The revised framework introduces a new borrowing limit structure. An eligible borrower may raise ECB up to the higher of:
- outstanding ECB upto USD 1 billion , or
- Total outstanding borrowings (external and domestic) up to 300% of its net worth, based on the latest audited standalone financial statements.
For this purpose:
- “Outstanding borrowings” include only fund-based debt;
- Exclude non-fund based facilities (e.g., guarantees, LCs) and mandatorily convertible into equity; and
- The proposed ECB (other than refinancing) must also be included while checking the limit.
These limits do not apply to borrowers regulated by financial sector regulators, who are governed by separate prudential norms.
9. What is the minimum average maturity period (MAMP) under the revised framework?
The revised ECB framework prescribes a minimum average maturity period (MAMP) of three years.
For borrowers engaged in the manufacturing sector, ECB may be raised with a maturity period between one and three years, provided that the outstanding amount of such ECB does not exceed USD 150 million.
Under the earlier framework, the MAMP varied depending on the purpose of the borrowing, as specified in the ECB Master Directions.
10. What is the permitted cost of borrowing under the revised ECB framework?
Under the revised framework, the cost of borrowing must be aligned with prevailing market conditions.
For ECB with an average maturity period of less than three years, the cost of borrowing must comply with the cost ceiling applicable to trade credit under the relevant regulations.
Under the earlier ECB framework, the all-in-cost ceiling was capped at 450 basis points over benchmark interest rates. The revised framework therefore moves towards a more market-driven pricing mechanism.
11. Have the reporting requirements changed under the revised ECB framework?
Yes. The revised framework introduces updated reporting formats and timelines.
Applications for obtaining the Loan Registration Number (LRN) and reporting any changes in ECB parameters must be submitted through the designated Authorised Dealer Category-I bank in Form ECB-1.
Changes to previously reported parameters must be reported through Revised Form ECB-1 within seven calendar days from the end of the month in which the change becomes effective.
Illustration:
If the interest payment schedule is revised during March, the change must be reported in Revised Form ECB-1 by 7 April.
Further, any event affecting the outstanding borrowing under a particular LRN including receipt of ECB proceeds or debt servicing must be reported in Form ECB-2 within seven calendar days from the end of the relevant month.
| Particulars | Requirement for filing of return (ECB -2) | |
| Scenario 1: | ECB fully drawn down Interest payment during March- No Utilisation or repayment during March- No | No Form ECB-2 filing is required for the month of April |
| Scenario 2: | ECB fully drawn down, Interest payment during March- No ECB proceeds utilised during March for permitted end-use- Yes | Reporting in Form ECB 2 to be done by 7th April |
| Scenario 3: | ECB fully drawn down, Utilisation or repayment during March- No Interest on ECB paid as per interest schedule in the month of March- Yes | Reporting in Form ECB 2 to be done by 7th April |
The revised reporting formats no longer require certification by a Chartered Accountant or Company Secretary, as was mandated under the earlier framework.