External Commercial Borrowing (ECB)

External Commercial Borrowing (ECB)

  • Context:

  • The Reserve Bank of India (RBI) has finalized comprehensive amendments to its External Commercial Borrowing (ECB) framework, accepting multiple industry suggestions while maintaining key safeguards surrounding end-use, enforcement, and compliance.

  • During the first half of FY26, Indian companies raised $18.49 billion in ECBs, which is lower than the $25.42 billion raised in the same period in the previous year.

  • Key Relaxations and Operational Changes:

  • The RBI has eliminated the requirement to maintain a 'current account' to be eligible to become a designated authorized dealer (AD) bank.

  • Designated AD banks are no longer mandated to assess whether borrowing costs align with prevailing market conditions.

  • The new framework provides explicit guidance on computing minimum average maturity and treating convertible instruments and non-fund-based credit to calculate outstanding borrowings.

  • A standard operating procedure has been formally incorporated for handling untraceable borrowing entities.

  • Sector-Specific Guidelines:

  • Real Estate Restrictions:

  • The RBI rejected requests to permit on-lending for the real estate business but provided clarity on using ECB proceeds for purchasing land and immovable property.

  • Developers must complete trunk infrastructure—such as roads, drainage, and water supply—before selling plots, signalling a shift towards financing structured development over speculative real estate activity.

  • Industrial Parks:

  • The framework formally enables ECB funding for industrial parks, subject to defined conditions including a minimum number of units, caps on space concentration, and a mandated share of industrial activity.

  • Applicability and Retained Safeguards:

  • Prospective Application:

  • The revised ECB framework will apply prospectively; existing ECBs will continue to be governed by earlier regulations, though reporting will follow updated timelines.

  • Retained Safeguards:

  • The regulator refused to remove the requirement of complying with the arm's length principle.

  • Furthermore, investments by foreign venture capital investors in certain debt securities will not automatically fall under the ECB framework.