External Commercial Borrowings – loans into India from foreign lenders – got their biggest rewrite in a generation on 16 February 2026. The old maze of USD 750 million annual caps, 500-basis-point cost ceilings, tiered maturities and “foreign equity holder” tests is gone. The new framework: borrow up to the higher of USD 1 billion outstanding or 300% of net worth, from any non-resident lender including NRIs, at market-determined pricing, with a uniform 3-year minimum maturity. If you read an ECB guide describing the old regime – and most still do – it is out of date.
Old vs new – the headline table
| Parameter | Old regime (to 15 Feb 2026) | New regime (from 16 Feb 2026) |
|---|---|---|
| Borrowing limit | USD 750 mn per financial year | Higher of USD 1 bn outstanding, or 300% of net worth (last audited standalone balance sheet) |
| All-in-cost ceiling | Benchmark + 500 bps (FCY) / + 450 bps (INR) | No numeric ceiling – market conditions; arm’s length if lender is a related party |
| Minimum maturity (MAMP) | 3/5/7/10-year tiers by end-use and lender | Uniform 3 years; manufacturing may go 1–3 years up to USD 150 mn outstanding |
| Eligible lenders | FATF/IOSCO-compliant entities; equity-holder tests | Any person resident outside India – including NRI/OCI individuals |
| Eligible borrowers | FDI-eligible entities | Any Indian entity (non-individual) – including LLPs |
| ECB-to-equity ratio | 7:1 for equity-holder ECBs | Removed |
| Mandatory hedging | 70% for certain infra borrowers | Removed |
| Acquisition financing | Prohibited (capital-market end-use) | Permitted for acquisition of control / strategic M&A / distressed acquisitions |
| Reporting | Monthly ECB-2 regardless of activity | Event-based ECB-2 – only months with drawdown/servicing/utilisation, within 7 days of month-end |
The parent-to-subsidiary loan – the main use case
For a foreign parent funding its Indian subsidiary, the 2026 regime removes almost every old friction:
- The parent can lend for working capital or general corporate purposes at 3-year maturity (old rule: 5 years, equity holders only);
- Pricing must be arm’s length – the transfer-pricing discipline replaces the bps ceiling; document the benchmarking;
- No 25% shareholding requirement – any group entity (or the founder’s family office, or an NRI director) can lend;
- Conversion to equity remains available, in full or part, even after default – at FEMA pricing, reported via revised ECB-1 plus FC-GPR;
- The choice between debt and equity is now genuinely commercial – see the instruments guide for the equity side.
What still cannot be funded – the negative list
The list echoes the FDI prohibited sectors with borrowing-specific additions:
- Chit funds and Nidhi companies;
- Real estate business and farmhouses – but construction development projects, industrial parks, SEZs, townships and own-use premises are now permitted;
- Agriculture/plantation (with the usual floriculture/horticulture/tea/coffee carve-outs);
- TDR trading;
- Investment in securities – except acquisition of control and strategic corporate actions (the big 2026 unlock);
- Repaying domestic loans that funded restricted uses, or that are NPAs;
- On-lending for any prohibited purpose.
Process and reporting
| Step | Requirement |
|---|---|
| 1. Before drawdown | Obtain a Loan Registration Number (LRN) by filing Form ECB-1 through your AD bank – no drawdown without it |
| 2. Ongoing | Form ECB-2 for any month with a drawdown, servicing or utilisation event – within 7 days of month-end |
| 3. Term changes | Revised Form ECB-1 within 7 days of the month-end of the change |
| 4. Late reporting | LSF: ₹7,500 + 0.025% × amount × years of delay; delayed ECB-2s for one LRN count as one instance |
| 5. Silence | Non-filing for 4 consecutive quarters with failed contact → reported to RBI/ED as wilful |
Structuring parent funding – debt, equity or both?
We model the ECB-vs-equity mix, benchmark the arm’s-length rate, and run the LRN and reporting cycle.
Talk to My Cloud AccountantFrequently asked questions
What is the current ECB limit for Indian companies?
Since 16 February 2026: outstanding ECB up to the higher of USD 1 billion or total borrowing up to 300% of net worth per the last audited standalone balance sheet – an outstanding-stock test, replacing the old USD 750 million per-year limit. RBI/SEBI/IRDAI/PFRDA-regulated entities follow their sectoral norms instead.
Can an NRI give a loan to an Indian company now?
Yes – under the 2026 framework any person resident outside India, including NRI and OCI individuals, is a recognised ECB lender. The loan needs an LRN before drawdown, minimum 3-year average maturity and market/arm’s-length pricing.
Is there still an all-in-cost ceiling on ECB?
No numeric ceiling since February 2026 – pricing must reflect prevailing market conditions, and be arm’s length where the lender is a related party. Only short-maturity manufacturing ECBs (under 3 years) carry the trade-credit-style caps.
Do old ECBs switch to the new rules?
No – ECBs with LRNs obtained before the amendment continue under their old terms (grandfathered), except that reporting follows the new event-based regime. Refinancing into new-regime terms is possible if the original maturity profile is maintained.
Can LLPs raise ECB?
Yes – the 2026 framework opens ECB to any Indian entity registered under a statute, which includes LLPs. Under the pre-2026 regime LLPs were effectively excluded; this is one of the quiet but significant changes.
Based on the FEM (Borrowing and Lending) Regulations 2018 as amended by the First Amendment Regulations 2026 (effective 16 February 2026) and RBI A.P. (DIR Series) Circular No. 22 of 16 February 2026. Last reviewed: July 2026.