Your company is not eligible for an overseas loan: what the 2026 ECB rules actually require | pvtltd.co

A founder tells you her company cannot raise an overseas loan because it is not eligible for FDI. Another has been told he must wait ten years of average maturity to use the money for working capital. A third has a term sheet from a Singapore fund at 11% and has been advised it breaches the RBI all-in-cost ceiling. Every one of these statements was correct on 15 February 2026. Every one of them is wrong today.

The Reserve Bank of India notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 on 9 February 2026, published in the official gazette and effective from 16 February 2026. These amend the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 — the Principal Regulation — and they rewrite almost every operative parameter of the External Commercial Borrowing regime. Eligible borrowers, recognised lenders, minimum maturity, pricing caps, borrowing limits, end-use restrictions and reporting timelines have all changed.

There is a second fact that matters more than any single change: the ECB provisions have been deleted from the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations dated 26 March 2019, and from the RBI's ECB FAQs. Until the RBI issues a replacement Master Direction, the Amended Regulations read with the Principal Regulation are the complete regulatory framework. If your CA, your banker, or your lawyer is quoting the 2019 Master Direction or the old FAQ page, they are quoting a document the RBI has withdrawn.

What the law actually requires

Who can borrow

Under the Amended Regulations, any person resident in India (other than an individual) incorporated, established or registered under a Central or State Act is an eligible borrower, subject to its own governing statute permitting it to borrow.

The single most consequential deletion is the old linkage to FDI eligibility. Previously, a borrower could raise ECB only if it was an entity eligible to receive foreign direct investment. That condition is gone. The practical effect: limited liability partnerships can now raise ECB, which they could not before.

Two further relaxations:

An entity undergoing insolvency resolution or restructuring may avail ECB, provided the borrowing is permitted under the resolution or restructuring plan.
An entity facing an investigation or appeal for a FEMA contravention may raise ECB without prejudice to that outcome — provided it discloses the pending investigation or appeal in Form ECB 1.

Note the boundary carefully. In its response to public comments on the draft, the RBI declined to extend eligibility to trusts. REITs and InvITs are therefore not eligible ECB borrowers. If you are structuring through a business trust, this route is closed.

Who can lend

A recognised lender is now any of: (i) a person resident outside India; (ii) a branch outside India of an entity whose lending business is regulated by the RBI; or (iii) a financial institution, or branch of one, set up in an International Financial Services Centre.

Two restrictions that shaped deal structuring for years have been removed. An individual no longer needs to be a foreign equity holder to lend. And the requirement that the lender be resident in a FATF or IOSCO compliant jurisdiction has been dropped entirely. Overseas branches of Indian banks can now extend ECB in both INR and foreign currency.

Minimum average maturity period

The tiered MAMP structure is gone. The MAMP is standardised at three years. The old regime linked certain end-uses — working capital, general corporate purposes, repayment of rupee loans — to maturities running up to ten years. Those ladders no longer exist.

One sectoral carve-out: borrowers in the manufacturing sector may raise ECB with a MAMP of one to three years, provided the outstanding amount of such short-maturity ECB does not exceed USD 150 million.

The Amended Regulations also specify five situations where MAMP need not be met at all: conversion of ECB into equity; repayment of ECB from the proceeds of non-debt instruments issued on a repatriation basis (where those proceeds are received after drawdown); refinancing of the ECB; waiver of debt by the lender; and repayment required for corporate actions such as a merger, demerger or acquisition of control. These are precisely the early-prepayment triggers that used to strand facilities, and the relief is meaningful.

Pricing

This is the change most likely to alter how deals are actually priced. The all-in-cost ceiling has been removed. The ceiling on prepayment charges and penalties has been removed. The only standard is that the cost of borrowing be in line with prevailing market conditions.

One residual constraint: for ECB with a MAMP below three years (the manufacturing carve-out), all-in-cost remains subject to the trade credit ceilings.

Borrowing limits

The limit is now the higher of: (a) outstanding ECB up to USD 1 billion; or (b) total outstanding borrowings — external and domestic — up to 300% of the borrower's net worth as per the last audited balance sheet.

Anyone still working to the old USD 750 million automatic-route figure is using a superseded number.

Excluded from the limit computation: non-fund-based credit, and funds raised through securities mandatorily convertible into equity. Borrowers regulated by financial sector regulators are outside these limits altogether.

The Amended Regulations now permit conversion from foreign currency ECB to INR ECB and vice versa — previously INR-to-foreign-currency conversion was not permitted. There is no mandatory hedging requirement; currency risk management is left to the parties.

End-use restrictions

The headline relaxation: the blanket prohibition on using ECB for equity investment has been narrowed. Equity acquisitions that involve acquisition of control in a target company may now be financed through ECB. There are also new carve-outs permitting ECB for real estate development projects and industrial parks meeting specified conditions, including purchase, sale or lease of land for such projects.

The negative list under the new Regulation 3A is: chit funds; Nidhi companies; real estate business and construction of farmhouses (subject to specified exemptions); agricultural and animal husbandry activities (with specified exemptions); plantations other than tea, coffee, rubber, cardamom, palm oil and olive oil; trading in transferable development rights; transactions in listed or unlisted securities (except specified exemptions, importantly including acquisition of control); repayment of a domestic rupee loan that was either availed for a restricted end-use or is classified as a non-performing asset under applicable prudential norms; and on-lending for any purpose for which funds cannot themselves be borrowed or used.

Reporting

Three forms, and a change of rhythm that catches people out:

Form ECB 1 — to obtain the Loan Registration Number (LRN).
Revised Form ECB 1 — for changes to ECB parameters, filed within 7 calendar days from the end of the month in which the change took effect.
Form ECB 2 — for receipt of proceeds or debt servicing, filed within 7 calendar days from the end of the month in which proceeds were received or servicing was undertaken.

Form ECB 2 was previously a monthly return. It is now event-based. If nothing happened in a month, nothing is filed. If a drawdown or a servicing payment happened, you have seven calendar days from month-end.

Read the transitional rule twice: while all other provisions of the Amended Regulations apply prospectively, the new reporting timelines apply to existing ECBs as well. A facility drawn in 2023 is on the new clock from 16 February 2026.

Practical implications

The untraceable borrower threshold has been tightened materially. A borrower is classified untraceable after four consecutive quarters of non-reporting — down from eight — combined with unresponsiveness to communications and physical absence from the registered address. That halves the window from roughly two years to one.

The consequence has also been sharpened. AD Category I banks must now report untraceable borrowers to both the RBI and the Directorate of Enforcement. A reporting lapse that was once a compliance irritant now creates an enforcement referral.

Reporting defaults are FEMA contraventions and are dealt with through the Late Submission Fee mechanism and, where the LSF route is unavailable or the contravention is substantive, through compounding under Section 15 of FEMA, 1999. Compounding is an application to the RBI; it is neither automatic nor free, and the exercise is disclosable in due diligence. A fund's DD team will pull your ECB filing history.

There is a structuring point worth flagging for foreign-owned and controlled companies. FOCCs remain restricted from availing domestic debt to finance acquisitions — but they can now use ECB to finance a control acquisition. Combined with the RBI's separate amendments permitting banks to finance equity acquisitions, the acquisition-financing toolkit for Indian entities has widened considerably.

Finally, the regulatory-gap risk. Because the ECB content has been stripped out of the 2019 Master Direction without a replacement yet issued, there are interpretational questions the Amended Regulations do not answer. Do not assume an old FAQ answer survives. Where a point is unclear, get your AD bank's written position before drawdown — the AD bank is your filing channel and its interpretation is what will govern your Form ECB 1.

Step-by-step: what to do

Re-test eligibility from scratch. If you were told before February 2026 that you could not raise ECB, re-test it. The FDI-eligibility linkage is gone. LLPs are in. Companies under restructuring are in. Trusts, REITs and InvITs remain out.
Recompute your headroom. Take net worth from your last audited balance sheet, multiply by 300%, and compare against USD 1 billion. Your limit is the higher. Exclude non-fund-based credit and mandatorily convertible securities. Remember (b) counts total outstanding borrowings — external and domestic — not ECB alone.
Re-check your lender. The FATF/IOSCO jurisdiction test is gone and individual lenders no longer need to be equity holders. A lender you previously rejected may now be recognised.
Map your end-use against Regulation 3A before signing a term sheet, not after. If the use is acquisition of equity, confirm in writing that it constitutes acquisition of control — that is the gate, and a minority stake does not pass it.
Fix your maturity at three years unless you are a manufacturer using the one-to-three-year window, in which case cap that tranche at USD 150 million outstanding.
Drop the all-in-cost spreadsheet. Negotiate on market terms. Retain evidence of comparable market pricing on file — "in line with prevailing market conditions" is the standard you must be able to demonstrate.
File Form ECB 1 through your AD Category I bank and obtain the LRN before drawdown. Disclose any pending FEMA investigation or appeal in the form.
Rebuild your ECB compliance calendar today, including for legacy facilities. Set a recurring check on the last day of each month: was there a drawdown or debt servicing? If yes, Form ECB 2 within seven calendar days. If a parameter changed, Revised Form ECB 1 within seven calendar days.
Audit the last four quarters of filings on every existing ECB. Four consecutive quarters of non-reporting now triggers untraceable-borrower classification and a Directorate of Enforcement referral. If you have gaps, regularise now via LSF or compounding rather than waiting for the AD bank to escalate.

FAQ

Can an LLP raise ECB now?
Yes. The removal of the FDI-eligibility linkage brings LLPs in as eligible borrowers, subject to the LLP Act permitting the borrowing.

Can a REIT or InvIT raise ECB?
No. The RBI expressly declined to extend eligibility to trusts when responding to comments on the draft regulations.

Is Form ECB 2 still a monthly return?
No. It is now event-based — due within 7 calendar days from the end of the month in which proceeds were received or debt servicing occurred. If neither happened, no filing is due. This timeline applies to existing ECBs too.

Can ECB proceeds be used to buy shares in another company?
Only where the acquisition involves acquisition of control of the target. Transactions in listed or unlisted securities otherwise remain a prohibited end-use under Regulation 3A.

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