RBI proposes market-linked framework for external commercial borrowings
Mumbai, Oct 3, 2025
The Reserve Bank of India (RBI) has proposed major changes to the framework for external commercial borrowings (ECBs), linking borrowing limits to the financial strength of companies and allowing funds to be raised at market-determined interest rates.
The draft norms, issued on Friday, seek to simplify end-use restrictions and minimum average maturity (MAM) requirements while broadening the pool of eligible borrowers and lenders to facilitate greater credit flow. Reporting requirements will be streamlined to further ease compliance.
Under the proposals, eligible borrowers may raise funds up to the higher of either outstanding ECB of $1 billion, or total external and domestic borrowings up to 300 per cent of net worth, based on the latest audited balance sheet.
“The borrowing limits are proposed to be linked to a borrower’s financial strength and ECBs are proposed to be raised at market-determined interest rates,” the RBI said.
The draft framework removes the all-in-cost ceiling, stipulating instead that borrowing costs must align with prevailing market conditions. In addition, the end-use restrictions and minimum maturity requirements, which have long been a sticking point for large companies, have been proposed to be simplified.
Currently, borrowing costs are capped at 450 basis points over the benchmark. For foreign currency loans, this is linked to the six-month LIBOR (London interbank offered rate) or its equivalent, while rupee-denominated borrowings are tied to government security yields.
Borrowers under restructuring schemes or insolvency resolution processes will be permitted to raise ECBs only if specifically allowed under their resolution plan. Proceeds must be repatriated immediately and credited to an INR account with a bank in India. Pending deployment, funds may be placed in fixed deposits with a cumulative tenor not exceeding 12 months.
Proceeds earmarked for permissible foreign currency expenditure may be credited to a foreign currency account in India and, until used, invested overseas in deposits rated “highest quality” or “high quality” by a recognised rating agency.
“The shift to market-determined rates could lower borrowing costs for well-rated corporates, while the expansion of eligible borrowers and lenders would open access to a wider pool of participants,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. Simplified end-use rules and lighter compliance are also expected to reduce friction.
The draft regulations are open for public feedback until October 24, 2025.
At present, borrowers can raise up to $750 million per year under the automatic route, with higher sums requiring prior approval. Costs are capped at 450 basis points over benchmark rates such as the six-month LIBOR for foreign currency loans, or the yield on corresponding Government of India securities for rupee-denominated loans. The minimum average maturity is generally three years, with longer tenures required for specific end-uses.
Borrowers must also meet defined eligibility criteria and comply with reporting requirements, including obtaining a loan registration number before drawdown.
“NBFCs have been raising funds via the ECB route, but whatever the RBI has done is a step in the right direction. These are still draft guidelines, so we will study them before submitting our response,” said Raman Aggarwal, chief executive of the Finance Industry Development Council (FIDC). On Friday, the RBI recognised FIDC as a self-regulatory organisation for non-banking financial companies.
Experts said the proposals would particularly benefit large corporations in infrastructure and capital-intensive sectors. “Overall, it brings India closer to global practice, reduces hurdles in raising foreign capital, and improves pricing efficiency while keeping safeguards in place,” Srinivasan added.
In the first quarter of FY26, net ECB inflows rose to $4.6 billion from $2.8 billion a year earlier, according to RBI data. In July 2025 alone, Indian firms, including NBFCs, filed proposals worth $3.32 billion, of which $3.22 billion was under the automatic route. Credila Financial Services sought $650 million for on-lending, while Reliance Power applied for a $500 million facility for working capital and general corporate purposes.
In FY25, Indian firms raised a record $61 billion through ECBs, with NBFCs leading the charge.
In the offing
Borrowers can raise funds up to the higher of either outstanding ECB of $1 bn, or total external and domestic borrowings up to 300% of net worth.
Borrowing costs to be aligned with market conditions.
Simplification of end-use restrictions and MAM requirements.
The move will bring down borrowing costs for well-rated companies.
Draft regulations open for feedback until October 24.
[The Business Standard]
