External commercial borrowings, which had fallen in the first three quarters of FY26, are set to look up with the Reserve Bank of India easing the norms. A liberalised regime will not only help companies access overseas markets for funds, but will open up opportunities in acquisition financing, explains Christina Titus
l What RBI has done to ease ECB framework
IN A MOVE to ensure that Indian companies can access more overseas funds through external commercial borrowings (ECBs), the Reserve Bank of India (RBI) announced a more simplified framework and issued the final guidelines for the same this week. Under the new norms effective February 16, a company can raise up to $1 billion or 300% of net worth as per the last audited balance sheet, whichever is higher, via ECBs. Earlier, borrowers were allowed to raise up to $750 million in a financial year.
The RBI also mandates that eligible borrowers raise ECBs with a minimum average maturity period of three years. Manufacturing sector borrowers are, however, allowed to raise ECBs with one year to three years average maturity, provided the outstanding amount does not exceed $150 million. The regulator also expanded the borrower and lender base eligible for ECB transactions. The RBI has now permitted any entity, including firms under restructuring or investigation, to raise funds through ECBs. It also enabled the proceeds of ECBs to be utilised in deposit or other debt instruments with maturity of up to one year.
l Removal of cap on pricing to benefit mid-sized firms
THE RBI HAS now allowed companies to raise funds at market-determined interest rates and removed the cost caps. In the case of fixed-rate loans, the floating rate plus spread of the corresponding swap shall not be more than the ceiling. Earlier, there was a spread of 450 basis points (bps) over the applicable benchmark for ECBs raised in foreign currency. This change has created new opportunities for mid-sized firms too.
“Previously, only top-rated companies could access ECBs due to low interest rate caps. Mid-sized firms—key to India’s growth—were not able to go for overseas funding. The new rules remove these caps, letting market rates prevail as a vote of confidence. Now, any company with a healthy balance sheet, beyond just AAA-rated firms, can negotiate and tap overseas borrowing,” said Ashwin Bishnoi, partner at Khaitan & Co.
l Loan usage norms relaxed
ACCEPTING THE FEEDBACK from stakeholders, the RBI has removed the maintenance of current account rule to be eligible for becoming a designated authorised dealer bank. It has also eased restrictions on how borrowed funds can be used, allowing them for buying land and immovable property, acquisition of “control” and on-lending (where funds are borrowed for lending to a third-party) to individuals. However, it rejected the request to permit on-lending for real estate business. The RBI clarified that the updated regulations will apply only to new ECBs and existing borrowings will continue to follow the rules in place when they were taken.
l Better access to foreign capital
THE NEW NORMS will ease business operations and allow entities to diversify their funding. More companies are likely to tap overseas borrowing, said experts. Registration of ECBs fell to $27.6 billion in April-December 2025, from $43.3 billion in the year-ago period, as per RBI data. Currently, 50% of the borrowings are from non-banking finance companies. Some companies will also aim to raise their proportion of overseas borrowing. On Monday, IIFL Finance Managing Director Nirmal Jain had said, “ECBs and foreign currency borrowings are about 12-13% now, we can take it up to 20% next year. We will be raising a good amount of ECB in the next few months.” More issuers will also choose the GIFT City route to lower costs and gain tax advantages, according to experts.
l Acquisition financing to shine
THE NEW FRAMEWORK will open up big opportunities in acquisition financing. Indian banks will tap into this opportunity and use their international presence to emerge as major players. “The liberalised ECB framework is an absolute game-changer for acquisition financing. Unlike other large markets, India previously barred acquisition financing, compelling most M&A activity to substantially depend on internal resources such as profits, reserves, and cash flows. The new ECB guidelines will fuel India’s surging M&A landscape by enabling acquisition financing through overseas borrowings,” said Bishnoi. He added the real estate sector will be the biggest beneficiary of this.
l Lower forward rates to help ECBs
COMPANIES BORROWING FUNDS from the overseas markets this financial year faced their greatest hurdle in high hedging costs, driven by the rupee’s sharp decline. Followed by a 125-bps rate cut during the year, the domestic market was cheaper than overseas borrowing. A combination of all these factors has led to a slowdown in overseas fundraising during the year. However, ECB activity is expected to accelerate now that forward rates have declined, followed by the RBI’s forex swaps. The recent data confirms this trend, as companies submitted proposals to raise $4.4 billion in December, the highest amount yet in FY26.