RBI Proposes Simplified Rules for External Commercial Borrowings

Press Release no. 2025-2026/1235; Dated: 03.10.2025

1. Introduction

The Reserve Bank of India (RBI) has announced its decision to rationalize the framework governing External Commercial Borrowings (ECBs) under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018. This initiative is part of RBI’s ongoing efforts to streamline the foreign borrowing process, improve accessibility for Indian entities, and ensure that external borrowings are aligned with the overall stability of the financial system.

2. Linking Borrowing Limits to Financial Strength

Under the proposed changes, ECB borrowing limits will be linked to the borrower’s financial strength, rather than uniform caps. This approach ensures that creditworthy companies with robust financials can access higher borrowing limits while maintaining prudential safeguards for weaker entities. The RBI aims to promote a more risk-based framework that encourages responsible external borrowing and reduces exposure to excessive leverage.

3. Market-Determined Interest Rates

Another significant proposal is to allow ECBs to be raised at market-determined interest rates. This move is intended to align India’s ECB framework with global market practices, giving borrowers the flexibility to negotiate competitive terms directly with foreign lenders. By removing rigid interest rate restrictions, the RBI seeks to encourage greater participation from international investors while ensuring transparency and fairness in pricing.

4. Simplification of End-Use and Maturity Norms

The proposed regulations also aim to simplify end-use restrictions and minimum average maturity requirements, thereby reducing procedural complexity. Additionally, the eligible borrower and lender base will be expanded to cover a wider range of entities and financial institutions. These measures are expected to facilitate diversified funding options, particularly for sectors that require long-term foreign capital for infrastructure, innovation, and expansion.

5. Conclusion

In conclusion, RBI’s proposed rationalization of ECB regulations marks a progressive step toward liberalizing India’s external borrowing framework while maintaining prudential discipline. By linking borrowing capacity to financial strength, allowing market-based pricing, and broadening eligibility, the RBI aims to create a more flexible, transparent, and growth-oriented system. This reform is expected to enhance credit flow to productive sectors, attract stable foreign investment, and strengthen India’s position in global capital markets.

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