Implications Of Draft External Commercial Borrowing Framework: A Step Towards Financial Liberalisation

The draft proposes a dynamic borrowing limit, allowing eligible companies to raise funds up to the higher of $1 billion or 300% of their net worth.

On October 3, 2025, the Reserve Bank of India released a draft amendment to the External Commercial Borrowing framework under the Foreign Exchange Management (Borrowing and Lending) Regulations, (Indian 500-rupee banknotes arranged for photograph) (Photo: Vijay Sartape/NDTV Profit)

On October 3, 2025, the Reserve Bank of India released a draft amendment to the External Commercial Borrowing framework under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, signalling a major step towards liberalizing corporate finance.

The framework aims to simplify regulations, broaden eligibility, ease end-use restrictions, and streamline reporting, thereby enhancing ease of doing business and supporting strategic growth across sectors like infrastructure, energy, manufacturing, real estate, and exports. While these reforms provide corporates greater flexibility and access to international funding, careful implementation is essential to manage risks. Enhanced due diligence for high-risk borrowers, robust monitoring of ECB utilization, investor protection measures, sector-specific guidance, and phased rollout of new norms can mitigate leverage and market volatility risks.

If executed prudently, the framework has the potential to accelerate corporate expansion, revive stressed assets, and strengthen India’s position as an attractive destination for global capital.

Key Proposals, Implications

Flexible Borrowing Limits

The draft proposes a dynamic borrowing limit, allowing eligible companies to raise funds up to the higher of $1 billion or 300% of their net worth. This replaces the earlier uniform cap of $1.5 billion under the automatic route. By allowing larger borrowings for financially sound entities, the framework facilitates financing for large infrastructure projects, industrial expansion, and technology-intensive ventures.

This flexibility will also enable companies with strong credit profiles to diversify their sources of finance, potentially reducing dependence on domestic banking channels. However, RBI will need to ensure that this flexibility does not lead to excessive leverage, particularly in sectors vulnerable to economic cycles.

Elimination of Cost Ceilings

Under the current system, ECBs are subject to cost ceilings, which restrict the interest rate and associated charges. The draft suggests removing these ceilings for medium- and long-term borrowings, allowing companies to negotiate rates with international lenders based on market conditions.

This change is expected to attract a wider pool of global investors, including institutional lenders and international banks, as pricing can now reflect prevailing market dynamics. However, short-term borrowings (less than three years) will continue to be capped, maintaining protections against potentially volatile short-term capital flows.

Expanded Eligibility Criteria

The draft broadens the eligibility criteria for borrowers and recognized lenders. Companies undergoing financial restructuring, or even under investigation, may now access ECBs, subject to specific disclosures.

This is a marked departure from the earlier restrictive approach and is expected to facilitate the revival of stressed assets, contributing to overall financial stability. Additionally, the inclusion of a broader set of lenders can increase competition in the lending market, potentially reducing borrowing costs for Indian companies.

Simplification Of End-Use Restrictions

Historically, ECBs have had strict end-use restrictions to prevent misuse of foreign funds. The draft simplifies these restrictions, allowing funds to be used for mergers and acquisitions, lease or purchase of industrial land, and other expansion-related purposes.

This flexibility is significant for corporates seeking to grow strategically or diversify their operations. By easing restrictions, the RBI is signaling a move towards a more business-friendly environment that supports long-term growth while still regulating high-risk activities like real estate speculation or stock market investment, which remain prohibited.

Streamlined Reporting Obligations

The draft framework aims to reduce the compliance burden by simplifying reporting requirements for ECBs. Currently, borrowers are required to submit detailed reporting on end-use, repayment schedules, and other regulatory disclosures. Simplified reporting enhances ease of doing business and encourages Indian corporates to leverage global funding options without excessive bureaucratic hurdles.

Suggestions For Regulator

While the draft framework is a progressive step, the following measures could further strengthen its implementation:

Enhanced Due Diligence For High-Risk Borrowers

While broadening eligibility is positive, robust due diligence is crucial, especially for companies undergoing restructuring or facing investigations. The RBI could mandate stricter disclosure requirements, independent credit assessments, and risk mitigation strategies for high-risk borrowers. This approach would minimize systemic risks while allowing corporates access to necessary funding.

Monitoring and Reporting Mechanisms

Effective monitoring of ECB utilization is essential to ensure funds are employed for productive purposes. A centralized digital reporting platform could allow real-time monitoring of borrowings, repayments, and sector-wise usage. This would help regulators identify and mitigate any misuse or speculative borrowing promptly.

Investor Protection Measures

Clear mechanisms for dispute resolution, transparent communication channels, and hedging provisions for currency risk could enhance investor confidence. Encouraging lenders to use standardized loan documentation and covenants aligned with international norms would also help maintain investor trust in the Indian market.

Gradual Implementation Of Borrowing Flexibility

To prevent market shocks, the RBI could consider phasing in the higher borrowing limits and removal of cost ceilings over a defined period. This would allow both domestic and foreign participants to adjust to the new framework while minimising systemic risks.

Sectoral Guidance And Caps

While the draft liberalizes end-use and eligibility, sector-specific guidance — particularly for high-leverage or vulnerable sectors like real estate or infrastructure — could help ensure that ECB inflows contribute to productive investment rather than speculative activity.

Implications For Industry

The proposed changes under the draft ECB framework are expected to have far-reaching effects across multiple sectors:

  • Infrastructure and Energy: Companies in power generation, renewable energy, and infrastructure development can leverage higher borrowing limits to fund large-scale projects. This could accelerate India’s push for sustainable energy and modern infrastructure.

  • Manufacturing and Technology: Easier access to global capital may help manufacturers and technology firms expand operations, invest in R&D, and improve global competitiveness. For example, electronics, automobile, and semiconductor sectors could use ECBs to modernize production and enhance exports.

  • Real Estate and Construction: Although speculative real estate investments remain prohibited, industrial and commercial construction projects could benefit from more flexible ECBs for acquiring land and financing expansion, promoting urban development and employment.

  • Stressed Assets and Financial Restructuring: By allowing entities under restructuring or investigation to access ECBs, the draft can help revive non-performing assets and distressed companies, contributing to economic stability and job preservation.

  • Export-Oriented Units: Streamlined reporting and flexible financing can enhance liquidity for exporters, enabling them to compete more effectively in international markets while hedging currency risks.

The draft ECB framework marks a transformative step in India’s external borrowing regime, offering greater flexibility, a wider borrower and lender base, and simplified regulations aligned with global practices. These reforms can accelerate infrastructure development, support corporate expansion, revive stressed assets, and ease domestic financing pressures, while enhancing ease of doing business and making India an attractive investment destination.

However, liberalization also brings risks, including higher leverage and exposure to global market volatility, making careful implementation, robust monitoring, and targeted safeguards essential. The RBI’s public consultation until October 24, 2025, provides stakeholders an opportunity to help shape a balanced framework. With prudent execution and continuous oversight, the ECB reforms have the potential to transform external borrowing into a strategic tool for sustainable economic growth and long-term development across industries.

Debashree Dutta is a co-founder and partner at Vritti Law Partners.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.

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