RBI’s Revised ECB Framework: Borrowing Limits, Maturity and Cost of Borrowing

Introduction

In Part 1 of this series, we discussed how the revised ECB framework has widened the entry gate for Indian businesses by expanding the eligible borrower base and broadening the recognised lender framework.

However, eligibility is only the first step.

Once an Indian entity is eligible to raise External Commercial Borrowings, the next set of questions becomes equally important:

How much can the entity borrow?

For what period can it borrow?

At what cost can it borrow?

How should the borrower evaluate currency risk?

These questions are not merely technical. They directly affect the commercial viability, regulatory compliance and risk profile of an ECB transaction.

The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 came into effect in February 2026 and consolidated several provisions that were earlier spread across the 2018 Borrowing and Lending Regulations, the ECB Master Direction and related regulatory clarifications.

This Part 2 explains the revised framework relating to borrowing limits, maturity and cost of borrowing.

1. Why borrowing limits matter

ECB is not an unrestricted foreign loan.

Even if the borrower is eligible and the lender is recognised, the amount proposed to be borrowed must fall within the permitted borrowing limits under the ECB framework.

This is important because ECBs form part of India’s external debt position. From a regulatory perspective, the RBI must balance two objectives:

First, Indian businesses should have access to foreign capital for growth, expansion, acquisitions, restructuring and infrastructure needs.

Second, excessive or imprudent foreign debt exposure should not create external sector vulnerability.

Therefore, borrowing limits are a key part of the ECB framework.

2. What are the ECB Borrowing Limits under the Revised Framework?

One of the most commercially important changes under the revised framework is the increase in borrowing headroom.

The earlier general automatic route limit of USD 750 million has been replaced with a higher threshold. Under the revised framework, eligible borrowers may raise ECB up to the higher of USD 1 billion or 300% of the borrower’s net worth, subject to the applicable conditions.

This is a significant liberalisation.

For large Indian businesses, the earlier limit could become restrictive, particularly where the borrowing was intended for capital-intensive projects, acquisition financing, infrastructure development or refinancing of existing debt.

The revised limit gives Indian businesses more flexibility to evaluate foreign debt as part of their capital structure.

3. Does this mean every borrower can raise USD 1 billion?

No.

This is an important point.

The revised framework should not be understood as giving every eligible borrower an automatic right to raise USD 1 billion.

The actual borrowing capacity must be examined based on:

• the borrower’s legal eligibility;

• the latest audited standalone financial statements;

• net worth;

• existing domestic borrowings;

• existing external borrowings;

• proposed ECB amount;

• sector-specific restrictions, where applicable;

• end-use of funds;

• maturity and repayment structure;

• lender profile;

• authorised dealer bank review.

The phrase “up to USD 1 billion” should therefore be read as a regulatory ceiling, not a commercial entitlement.

A weak borrower with insufficient net worth, high leverage or unclear end-use may still find it difficult to raise ECB, even if the framework theoretically permits a higher limit.

4. How Does the 300% Net Worth Test Work?

The 300% of net worth test is particularly important.

Where the borrowing limit is linked to the borrower’s net worth, the computation must be done carefully. For companies, net worth should generally be understood with reference to the Companies Act definition, while for other entities, the applicable framework may require a different computation based on funds recorded in the books. Professional alerts on the revised ECB framework have specifically noted the need to examine the definition of net worth for companies and other entities separately.

This means CFOs should not calculate the ECB limit casually.

The computation should be backed by:

• latest audited standalone balance sheet;

• net worth workings;

• existing borrowing schedule;

• proposed ECB amount;

• board note;

• AD bank confirmation;

• supporting certification, where required.

This becomes especially relevant for borrowers with multiple domestic loans, group-level debt, guarantees, related-party funding or restructuring arrangements.

5. Practical example

Assume an Indian company has a net worth of USD 250 million.

Three hundred per cent of its net worth would be USD 750 million.

If the revised framework permits borrowing up to the higher of USD 1 billion or 300% of net worth, the company may potentially examine borrowing up to USD 1 billion, subject to all other applicable conditions.

However, if another borrower has a net worth of USD 500 million, then 300% of net worth would be USD 1.5 billion. In such cases, the net worth-linked threshold may become more relevant, depending on the exact wording and applicable regulatory conditions.

The larger point is this: ECB limits are not merely headline figures. They require proper computation and documentation.

6. Minimum Average Maturity Period under the ECB Framework

Another important reform relates to the minimum average maturity period, commonly called MAMP.

Under the revised framework, the MAMP has broadly been standardised at three years, with specific flexibility for certain manufacturing sector borrowings. Professional summaries of the 2026 framework note that the revised rules simplify eligibility norms and standardise maturity requirements.

This is a useful simplification.

Earlier, maturity requirements could vary depending on the end-use, sector and structure of the borrowing. This created practical complications for borrowers, lenders and authorised dealer banks.

A more standardised maturity framework gives the parties greater predictability while structuring ECB transactions.

7. Special flexibility for manufacturing companies

The revised framework retains specific flexibility for the manufacturing sector.

Manufacturing companies may raise ECB with a minimum average maturity between one and three years, subject to the prescribed outstanding ECB limit. This flexibility has been noted in multiple professional summaries of the revised framework.

This is commercially relevant because manufacturing companies may require shorter-tenor funding for:

• capacity expansion;

• machinery procurement;

• supplier payments;

• working capital-linked requirements;

• production-linked financing;

• export-oriented operations.

However, manufacturing borrowers must be careful. Merely being involved in some manufacturing activity may not be enough. The borrower should be able to clearly establish that it qualifies for the manufacturing sector flexibility.

8. Why MAMP is not just a legal point

Minimum average maturity is not merely a compliance phrase.

It affects the commercial structure of the loan.

The following terms may affect MAMP:

• repayment schedule;

• bullet repayment;

• amortisation;

• prepayment rights;

• call options;

• put options;

• refinancing terms;

• acceleration clauses;

• conversion provisions;

• early redemption rights.

If a loan agreement appears to provide a three-year maturity but contains repayment or exit features that effectively shorten the borrowing period, it may create compliance concerns.

Therefore, ECB loan agreements should be reviewed carefully before signing.

9. Refinancing of ECB

Refinancing is another important area.

ECB refinancing may be commercially useful where a borrower wants to replace an existing ECB with a new ECB on better terms, different pricing, or revised maturity.

Professional commentary on the revised framework indicates that the average maturity of a refinancing ECB should generally be at least equal to the outstanding average maturity of the existing ECB, and that certain clarifications have been issued regarding maturity in refinancing cases.

This is practically useful, but refinancing should not be treated as a simple rollover.

The borrower must examine:

• whether the existing ECB was compliant;

• whether the new lender is recognised;

• whether the refinancing terms are permitted;

• whether the maturity condition is satisfied;

• whether pricing is supportable;

• whether reporting is required;

• whether any change in security or guarantee is involved.

10. Cost of borrowing: from rigid ceiling to market-linked approach

The cost of borrowing is another area where the revised framework is commercially important.

Earlier, the all-in-cost framework was more rigid. Under the revised framework, professional summaries indicate that the RBI has moved towards greater pricing flexibility and a more market-linked approach, while retaining regulatory discipline.

This makes sense.

The cost of foreign borrowing depends on several factors:

• global interest rates;

• currency of borrowing;

• credit profile of the borrower;

• lender jurisdiction;

• security package;

• guarantee support;

• tenor;

• market liquidity;

• sector risk;

• country risk;

• related-party relationship.

A rigid cost cap may not always reflect market reality.

The revised approach gives borrowers and lenders greater room to agree on commercially realistic pricing.

11. Related-party ECBs require extra caution

Pricing flexibility does not mean arbitrary pricing.

This is especially important in related-party ECBs.

If the lender is a foreign parent, overseas group company, offshore subsidiary, promoter-linked entity or group treasury company, the borrowing terms must be supportable on an arm’s length basis.

The borrower should examine:

• transfer pricing;

• withholding tax;

• thin capitalisation;

• beneficial ownership;

• treaty eligibility;

• interest deductibility;

• board approval;

• loan agreement terms;

• benchmarking of interest rate;

• documentation of commercial rationale.

In group funding structures, the FEMA analysis and tax analysis must move together.

A borrowing may be permissible under FEMA but still create tax or transfer pricing issues if the pricing is not properly benchmarked.

12. ECB should not be evaluated only on headline interest rate

Many businesses look at ECB because foreign currency interest rates may appear lower than domestic borrowing rates.

This can be misleading.

An ECB may have a lower headline interest rate, but the real cost may include:

• currency depreciation;

• hedging cost;

• withholding tax;

• upfront fees;

• commitment fees;

• legal documentation cost;

• guarantee fees;

• security creation cost;

• compliance and reporting cost;

• refinancing risk.

For an Indian borrower earning entirely in rupees, an unhedged foreign currency ECB can become expensive if the rupee depreciates.

Therefore, CFOs should compare ECB with domestic borrowing on a fully loaded basis, not merely on coupon rate.

13. Currency risk: the hidden cost

Currency risk is one of the most important commercial risks in an ECB transaction.

If an Indian company borrows in USD but earns revenue in INR, it is exposed to exchange rate movement.

A depreciation of the rupee increases the effective repayment burden.

For example, if a borrower raises USD debt when the exchange rate is ₹83 per USD, but the rupee later depreciates to ₹90 per USD, the rupee cost of repayment increases significantly.

This can affect:

• profitability;

• cash flows;

• debt service coverage ratio;

• covenant compliance;

• refinancing ability;

• credit rating;

• promoter support requirements.

Therefore, companies should examine whether they have a natural hedge or whether they need a financial hedge.

14. Natural hedge versus financial hedge

A natural hedge exists where the borrower has foreign currency earnings that can be used to service foreign currency debt.

For example, an export-oriented company earning USD revenue may be better positioned to service USD debt.

A financial hedge, on the other hand, involves derivative or hedging products used to manage currency exposure.

Before raising ECB, the borrower should ask:

• Does the company earn foreign currency revenue?

• Is the revenue in the same currency as the borrowing?

• What percentage of the ECB exposure is naturally hedged?

• What is the cost of financial hedging?

• Does the ECB remain attractive after hedge cost?

• Has the company stress-tested depreciation scenarios?

A borrowing that looks cheaper before hedging may not remain cheaper after considering currency protection.

15. Role of the authorised dealer bank

The authorised dealer bank plays a central role in ECB transactions.

The AD bank is not merely a filing intermediary. It reviews the transaction from the perspective of RBI directions and FEMA compliance.

Borrowers should involve the AD bank early, especially where the ECB involves:

• complex lender structures;

• group entities;

• acquisition financing;

• refinancing;

• real estate-linked activity;

• security creation;

• guarantees;

• repayment restructuring;

• change in terms;

• unusual pricing.

Early engagement with the AD bank reduces execution risk.

16. PnP Consulting view

The revised ECB framework gives Indian businesses more room to evaluate foreign debt as a serious funding option.

The higher borrowing limits, standardised maturity norms and flexible pricing framework make ECBs more commercially relevant for larger companies, manufacturing entities, infrastructure businesses and acquisition-driven groups.

However, the decision to raise ECB should not be based only on availability of foreign capital.

A proper ECB evaluation should include:

• borrower eligibility;

• lender eligibility;

• borrowing limit computation;

• maturity analysis;

• pricing review;

• tax and transfer pricing review;

• currency risk assessment;

• security and guarantee review;

• AD bank consultation;

• reporting roadmap.

In our view, the best ECB transactions are structured before the term sheet is signed, not after the loan agreement is negotiated.

Conclusion

The revised ECB framework has made foreign borrowing more accessible and commercially flexible for Indian businesses.

The increase in borrowing headroom, rationalisation of maturity and flexibility in pricing are important reforms. They allow Indian businesses to consider ECBs for larger and more strategic funding requirements.

However, more flexibility also requires more discipline.

Borrowers must carefully evaluate the amount they can borrow, the maturity conditions that apply, the real cost of borrowing and the currency risk embedded in the transaction.

If your business is evaluating foreign borrowing, acquisition funding, refinancing or cross-border debt structuring, PnP Consulting can assist with ECB feasibility, FEMA review, documentation support and compliance monitoring.

In Part 3 of this series, we examine the most important compliance question: once ECB funds are raised, what can they actually be used for — and what are the reporting and compliance risks businesses must watch out for?