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FEMA - Borrowing and Lending [including External Commercial Borrowing (ECB) and Trade Credit (TC)]

Reserve Bank of India (RBI) has amended the regulations for borrowing and lending under the Foreign Exchange Management Act, 1999 (FEMA).

What are the regulations for External Commercial Borrowing (ECB)?

  • External Commercial Borrowing (ECB) means borrowing by an eligible borrower from a recognised lender.
  • Eligible borrowers –
    • Any person resident in India (other than an individual) that is incorporated, established or registered under a Central or State Act is an eligible borrower, provided such person is permitted for ECB in terms of applicable Acts.
    • An eligible borrower that is under a restructuring scheme or corporate insolvency resolution process may raise ECB only if specifically permitted under the restructuring or resolution plan.
    • An eligible borrower against whom any investigation, adjudication or appeal by a law enforcement agency for contravention of any rule, regulation or direction issued under FEMA is pending, may raise ECB notwithstanding the pending investigation or adjudication or appeal and without prejudice to the outcome of such investigation or adjudication or appeal.
  • Recognised lenders –
    • A person resident outside India.
    • A branch outside India of an entity whose lending business is regulated by RBI.
    • A financial institution or a branch of a financial institution set up in International Financial Services Centres (IFSCs).
  • Currency of borrowing –
    • ECB can be denominated in foreign currency (FCY) or Indian Rupee (INR).
    • Currency of ECB may be changed from one FCY to another FCY, an FCY to INR and INR to an FCY.
    • Change of currency shall be at the exchange rate prevailing on the date of the agreement for such change or at an exchange rate which does not result in a liability higher than that arrived at by using the exchange rate prevailing on the date of the agreement.
  • ECB includes borrowing by issuance of a Foreign Currency Convertible Bond (FCCB) and Foreign Currency Exchangeable Bond (FCEB).
  • ECB can be raised up to the higher of (a) outstanding ECB up to USD 1 billion; or (b) total outstanding borrowing (external and domestic) up to 300% of net worth as per the last audited standalone balance sheet of the borrower.
  • The borrowing limit shall not be applicable on eligible borrowers that are regulated by financial sector regulators like RBI, Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA).
  • Maturity –
    • Minimum average maturity period (MAMP) of ECB shall be 3 years.
    • An eligible borrower engaged in manufacturing sector may raise ECB with average maturity period between 1 year and 3 years, subject to the condition that outstanding amount of such ECBs shall not exceed USD 150 million.
    • Call and put options shall not be exercisable prior to completion of MAMP.
  • Cost of borrowing –
    • The cost of borrowing shall be in line with prevailing market conditions. 
    • In case of eligible ECBs with average maturity period of less than 3 years, the cost of borrowing shall be in compliance with cost ceiling specified for Trade Credit (TC). In the case of fixed rate loans, the floating rate plus spread of the corresponding swap shall not be more than the ceiling.
  • Receipt of ECB proceeds –
    • An eligible borrower shall drawdown ECB only after obtaining the Loan Registration Number (LRN) from RBI through the designated Authorised Dealer Category I bank (AD Category I bank).
    • ECB proceeds meant to be utilized for a permitted INR expenditure in India, shall be credited to an INR account held in India with the designated AD Category I bank by the end of the succeeding month from the date of receipt. Pending utilisation, the funds may be invested in an unencumbered fixed deposit of tenor up to 1 year with the designated AD Category I bank.
    • ECB proceeds meant to be utilized for a permitted foreign currency expenditure may be credited to an FCY account held in India with the designated AD Category I bank or an FCY account held outside India. Pending utilisation, the funds may be invested outside India in an unencumbered fixed deposit of tenor up to 1 year or an unencumbered debt instrument with original maturity up to 1 year.
  • Repayment in case of an ECB availed from the Non-Resident Ordinary (NRO) account of the lender shall be credited to the NRO account only.

What are the regulations for Trade Credit (TC)?

  • Trade Credit (TC) means credit extended by the overseas supplier or financial institution for permissible imports into India and includes both suppliers’ credit and buyers’ credit. 
  • Suppliers’ credit relates to the credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from an overseas bank or financial institution.
  • TCs can be raised for the purpose of import of non-capital and capital goods.
  • TCs can be raised in any freely convertible FCY as well as in INR.
  • Importers can raise TC up to USD 50 million equivalent per import transaction for import of capital or non-capital goods.
  • The period of TC reckoned from the date of shipment – 
    • For import of non-capital goods – maximum 1 year and linked with the operating cycle.
    • For import of capital goods – maximum 3 years.
  • Recognised lenders are overseas suppliers, banks and other financial institutions, foreign equity holders and financial institutions in IFSCs in India.
  • Cost of credit –
    • For TCs in FCY, the maximum spread over the benchmark of 6-month LIBOR or applicable benchmark for the respective currency will be 250 basis points per annum.
    • For INR denominated TC, the all-in-cost shall be commensurate with prevailing market conditions.

What is benchmark rate?

Benchmark rate means any widely accepted interbank rate or Alternative Reference Rate (ARR) of 6-month tenor, applicable to the currency of borrowing, in case of FCY denominated ECB / TC. Further, it means prevailing yield of the Government of India security of corresponding maturity in case of INR denominated ECB / TC.

What are the other regulations for borrowing or lending under FEMA?

  • External Commercial Lending (ECL) means lending by a person resident in India to a person resident outside India.
  • A person resident in India may lend in foreign exchange out of funds held in his / her Exchange Earners’ Foreign Currency (EEFC) account, for trade related purposes to his / her overseas importer customer.
  • An individual resident in India may borrow up to USD 250,000/- or its equivalent from his / her relatives outside India.
  • An individual resident in India studying abroad may raise loan outside India up to USD 250,000/- or its equivalent for the purposes of payment of education fees abroad and maintenance.
  • An AD may permit a temporary overdraft, for up to ₹5 billion in rupee accounts maintained with it by its overseas branch or correspondent or Head Office outside India.
  • An AD bank may lend in INR to a person resident outside India being a resident in Bhutan, Nepal or Sri Lanka, including a bank in these jurisdictions, for cross border trade transactions.
  • A resident individual may grant Rupee loan to a Non-Resident Indian (NRI) / Overseas Citizen of India (OCI) Cardholder relative within the overall limit under the Liberalised Remittance Scheme (LRS).


References

Reserve Bank of India. (2018, December 17). 'Foreign Exchange Management (Borrowing and Lending) Regulations, 2018'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11441&Mode=0

Reserve Bank of India. (2026, February 09). 'Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13306&Mode=0

Reserve Bank of India. (2026, February 16). 'Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=62243

Reserve Bank of India. (2026, February 16). 'Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13305&Mode=0


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