Before diving into the amendment, it is prudent to understand why these regulations are introduced now and what prevented the Reserve Bank from liberalising the debt market so far. The delay in undertaking comprehensive ECB reforms could be attributed to a worldwide cautious approach to foreign borrowing, especially in the aftermath of the 2008 Global Financial Crisis. The international debt markets had hit an all-time low with interbank lending freezing, increased scrutiny on traditional lending, higher capital and liquidity ratios required by banks, and an overall heightened oversight and risk management for banks with major reforms like the BASEL III accord. More generally, institutional inertia, and bureaucratic structures slowed down the pace of reform, while political considerations often heightened concerns over excessive foreign influence on domestic markets. Until recently, macroeconomic conditions—particularly external debt levels and foreign exchange reserves—did not provide sufficient cushion to safely liberalise foreign borrowing without risking currency instability or inflationary pressures. These could have been some of the reasons why the ECB regulations were not eased up before now.

The timing of the 2025 reforms, however, reflects a convergence of favourable economic, institutional, and geopolitical factors. India today enjoys robust forex reserves, manageable external debt ratios, and a stable macroeconomic environment. These fundamentals provide a buffer against potential market volatility and make it feasible to raise borrowing limits and ease the restrictions. At the same time, the global financial landscape has evolved dramatically over the past decade, with capital flows becoming more fluid and competitive. Previous ECB norms, with rigid ceilings and constrained end-use provisions, were increasingly misaligned with international practices, putting Indian corporates at a relative disadvantage when seeking foreign capital.

Underlying the present reform is also a notable shift in regulatory philosophy under RBI Governor Sanjay Malhotra, who has emphasised market-determined mechanisms and strategic liberalisations. His initiatives through the Unified Lending Interface, Regulatory Simplification, and Trust building in digital financial services, indicate RBI’s step towards financial inclusivity. The new ECB framework reflects a calculated confidence in India’s institutional maturity and capacity to manage the risks associated with liberalised foreign borrowing. This policy evolution is also shaped by India’s geopolitical strategy- greater access to international capital markets strengthens the country’s financial sovereignty, diversifies its funding sources, and positions it more strategically in a multipolar global economy. Therefore, these reforms are a welcome step. The reforms are discussed in greater detail below.

Analysis

To begin with, the definition of “benchmark rate” has been made more specific, and distinct for foreign currency and Indian currency ECBs. This reduces ambiguity, aligns with global shift away from LIBOR to ARRs, and enhances pricing transparency and comparability. Next, an expanded definition of cost of borrowing is proposed to include all-in costs — fees, ECA charges, guarantee fees, etc. unlike the previous regime that only focussed on the inclusion of interest rates. This enables full cost capture and discourages disguised mark-ups.

Moving on, Regulation 3A is introduced as a dedicated provision for the prohibition on end-use of borrowed funds, which does not exist in the current regime. The prohibited end use remains consistent with the current regime with respect to businesses of chit funds or Nidhi Companies, construction of farmhouses and trading in TDRs. However, the permitted end use has been expanded to also include mergers, acquisitions, amalgamations, or arrangements in accordance with the Companies Act, 2013, and the SEBI Takeover Code, 2011, investment in terms of FEM(Overseas Investment) Rules and Regulations, 2022, investment in primary market instruments issued by non-financial entities for on-lending, activities/sectors permitted for Foreign Direct Investment (FDI), and purchase/long-term leasing of industrial land as part of a new project/modernisation or expansion of existing units. This move codifies the limitations on end-use clearly, reducing misuse and strengthening governance and monitoring.

Further, the Draft Regulations also permit on-lending by a company or body corporate to its group entity which was not permitted under the current regime. This will aid in increased efficiency, reduced cost of borrowing, and improved financial stability of the group altogether.  The new Draft Regulations also permit eligible borrowers to raise an ECB under any currency—domestic or foreign without it having to be a “freely convertible currency”, unlike the current regime. This shift enhances hedging and risk management flexibility.

Adding on, the draft expressly permits conversion of ECB proceeds into non-debt instruments such as equity or convertible instruments and also lists such conversions among cases exempted from certain restrictions including MAMP. This is clearer and more explicit than the older consolidated Master Directions which treated conversions but failed to frame exemptions as neatly. This express permission provides greater clarity and reduces uncertainty for borrowers and lenders who intend such conversions post drawdown.

Moving on, the new regime makes provision for refinancing. An eligible borrower may refinance an existing ECB, in part or in full, by a fresh ECB, subject to the condition that refinancing doesn’t result in failure to meet the MAMP requirement applicable to the original borrowing (weighted outstanding maturity in case of multiple borrowings) and that the credit spread applicable to the fresh ECB is not more than the credit spread applicable to the original borrowing (weighted average credit spread in case of multiple borrowings). This aids in promoting disciplined refinancing and reduces rollover risk by imposing conditions that prevent a borrower from extending their loan’s maturity and increasing the interest rate beyond the original terms. By requiring that the new ECB’s credit spread is not higher than the original borrowing’s and that the weighted average maturity (MAMP) is not reduced, it encourages the borrower to refinance with a lower all-in-cost and avoids situations where a borrower tries to take advantage of new loans to roll over debt at a higher cost or shorter maturity. 

Speaking of MAMP, the Draft standardises the maturity period to 3 years for most ECBs, except for manufacturing borrowers who have a maturity period of 1 to 3 years subject to an outstanding-stock cap of USD 50 million. This standard is unified for all sectors unlike the current regime where there are multiple caps depending on the category. This makes raising ECBs simpler, and more predictable cap and aligns leverage with financial strength. The draft also explicitly lists exemptions such as conversion to non-debt instruments, lender debt waivers, and cases of closure/merger/insolvency/resolution. Explicit exemptions reduce compliance risk in restructurings and M&A/resolution scenarios, making refinancing and turnaround financings easier to structure.

Most importantly, an eligible investor under the new regime can be a person resident in India, incorporated, registered, or established under the Central and State Acts, including persons undergoing a CIRP, and persons against whom investigation or adjudication or appeal by the law enforcing agencies for contravention of any rule or regulation or direction issued under FEMA is pending. Additionally, the current regime’s borrowing limit of upto USD 750 million is proposed to be changed to USD 1 billion or 300% of the entity’s net worth whichever is higher. Attaching the borrowing limit to an entity’s net worth, indicates a real shift from prescriptive to prudential treatment of both the borrowers and their borrowings.

Securing ECBs under the proposed regime is a lot more structured. The borrowing agreement contains a clause requiring the borrower to provide such security. The security shall be co-terminus with the underlying ECB. No objection certificate, as applicable, from the existing lenders in India shall be obtained before creation of charge, and creation of charge on an asset shall not be construed as a permission to acquire the asset in India, by the overseas lender / security trustee. This ensures continuous security that is capable of being enforced by the lenders at any time during the term of the loan, aids in streamlined recovery, and ensures fairness among creditor classes by making an NOC from the existing lender mandatory. These provisions are not clearly dealt with in the existing regime leading to ambiguities and unfair advantages for the borrowers, making the debt market less reliable.

The draft also requires that the drawdown of ECB proceeds is permitted only after obtaining a Loan Registration Number (LRN), and it tightens/clarifies the drawdown mechanics (e.g.: proceeds must be repatriated and credited to India; temporary investment rules). The draft also revisits permitted guarantee structures and clarifies what forms of third-party/parent guarantees are permitted, aligning guarantee acceptance to the expanded lender pool and domestic law compatibility. Requiring LRN before drawdown formalises RBI oversight at the moment funds are accessed and reduces post-drawdown reporting irregularities. It also puts pressure on lenders/borrowers to complete pre-drawdown formalities.

Another crucial feature of the draft regulations is that it tightens and streamlines Authorised Dealer responsibilities. AD Category-I banks must verify compliance, certify drawdown only after the conditions are met, and submit consolidated reporting. The draft also simplifies/formalises some reporting templates and emphasises AD accountability for notifications to RBI and link offices. This would mean that AD banks will face stronger pre-drawdown gatekeeping duties and may update internal KYC/compliance checklists and turnaround SLAs. Borrowers should expect more AD involvement before drawdown. The net effect would be better RBI visibility and fewer post-drawdown contraventions.

Reporting standards have been made more transparent, efficient, and streamlined by making the process digital, time-bound, and fee-linked. The reporting standards have also been simplified to include:

(i) ‘Form ECB’ for obtaining Loan Registration Number (LRN);

(b) ‘Form ECB 2’ for reporting drawdown and debt servicing, within thirty calendar days from the date of such cashflow; and

(c) ‘Revised Form ECB’ for reporting changes in the ECB parameters as reported in Form ECB, within thirty calendar days from the date of such change.

This Form ECB 2 was only allowed to be filed within 7 days from the close of the month through the designated Authorised Dealer. This has been extended to thirty days, which will allow more time for entities to comply.

Concluding Remarks

The Draft (Fourth Amendment) Regulations, 2025, mark a decisive evolution in India’s external borrowing regime — from a permit-based framework to a principles-based, disclosure-driven architecture. If implemented with minimal procedural friction, these reforms could deepen India’s debt markets, lower systemic risk, and enhance the global competitiveness of Indian borrowers. This draft represents not just a regulatory amendment but a structural modernization of India’s approach to external financing.

The ripple effects of the reforms will be felt across various debt instruments as well. Corporates can now negotiate globally competitive terms, potentially reducing the cost of capital and incentivising strategic expansion. Perpetual debt instruments and other hybrid instruments will benefit from increased issuance flexibility, improving capital adequacy profiles. Easier access to foreign funding may encourage the growth of securitisation and structured finance instruments, diversifying market offerings. For Indian business leaders, the revised ECB framework presents unprecedented opportunities. Higher borrowing ceilings and broader eligibility provide room for capital-intensive projects and cross-border investments. Relaxed end-use restrictions allow firms to deploy funds for global operations, enhancing international competitiveness. Greater exposure to global interest rate and forex movements necessitates sophisticated hedging and compliance strategies. 

On the macro front, by aligning with international best practices, India positions itself as a more attractive destination for global investors. Liberalised borrowing rules are likely to boost foreign investment, enhancing liquidity in domestic markets. Transparent and market-responsive regulations bolster India’s creditworthiness and reinforce its strategic autonomy in global finance. Access to diverse funding sources strengthens India’s ability to navigate economic shocks while pursuing long-term growth ambitions.

The RBI’s EBCB reforms are not simply administrative adjustments; they are a strategic pivot. They signal a clear intent to harmonise domestic finance with global markets, empowering Indian businesses while enhancing the nation’s role in international capital flows. As these regulations transition from draft to law, the emphasis will shift from compliance to execution – on how effectively Indian enterprises and financial institutions can leverage this newfound access to foreign capital while managing associated risks.