India: The RBI Issues A New External Commercial Borrowing Policy

Last Updated: 22 January 2019
Article by Ran Chakrabarti and Kriti Gangwar


Towards the end of last year, the Reserve Bank of India (the "RBI") in its Statement on Developmental and Regulatory Policies1 proposed to consolidate regulations governing all types of borrowing and lending transactions between a person resident in India and a person resident outside India in both foreign currency and Indian Rupee ("INR").

Pursuant to the statement, the RBI notified the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (the "Regulations") on December 17, 2018 superseding the previous regulations.

With the intent of further improving the ease of doing business in India, in line with the revised Regulations and to further rationalise the existing framework for external commercial borrowings ("ECB") and INR denominated bonds, the RBI issued a revised ECB policy (the "New ECB Policy")2 on January 16, 2019.

The New ECB Policy has come into effect immediately.


2.1 Change in Structure

The previous framework for raising loans through ECB consisted of three tracks and a regime for Rupee denominated bonds (commonly known as masala bonds) listed on foreign debt exchanges.

In particular, that framework essentially provided for:

  1. Medium term foreign currency denominated ECB with minimum average maturity of 3 to 5 years, except in the case of manufacturing sector companies who could raise foreign currency denominated ECBs with a minimum average maturity period of only 1 year ("Track I");
  2. Long term foreign currency denominated ECB with minimum average maturity of 10 years ("Track II");
  3. INR denominated ECB with minimum average maturity of 3 to 5 years, except in the case of manufacturing sector companies who could raise INR denominated ECBs with a minimum average maturity period of only 1 year ("Track III"); and
  4. INR denominated bonds issued by an Indian entity in foreign markets of which the interest payments and principal reimbursements were denominated in rupees ("Rupee Denominated Bonds").

The New ECB Policy has collapsed the existing four-tiered structure into just two tiers, depending on the currency.

Tracks I and II have been merged into the category Foreign Currency Denominated ECB ("FC ECB").

Track III and Rupee Denominated Bonds have been merged into the category Rupee Denominated ECB ("INR ECB").

This new framework is now instrument neutral and we note that in particular, in relation to INR ECB, it includes both the private placement or listing of Rupee denominated bonds overseas.

The New ECB Policy further clarifies that it shall not apply to investments in non-convertible debentures in India made by registered foreign portfolio investors ("FPIs").

2.2 Expansion in the List of Eligible Borrowers

The previous framework provided for a specific list of eligible borrowers under each track.

The New ECB Policy, however, permits a wider set of end-users to tap overseas markets for loans.

The list has now been expanded to include all entities eligible to receive foreign direct investment ("FDI"), essentially permitting them to borrow through the ECB route.

Additionally, Port Trusts, Units in SEZs, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, (including registered not for profit companies, registered societies and trusts, cooperatives and non-government organisations) can also borrow under the New ECB Policy.

In the context of eligible borrowers, we would stress that the language of the New ECB Policy refers to entities eligible to receive FDI and therefore we query to what extent the Indian borrower actually has to have any FDI. On the assumption that it doesn't, the new framework is a considerable liberalisation from the previous regime.

It should also be noted that the New ECB Policy contains a specific section on ECB for start-ups, subject to a cap on borrowings of USD 3 million per year.

2.3 Recognised Lenders

Under the New ECB Policy, recognised lenders are required to be a resident of a country which is FATF or IOSCO compliant and multilateral and regional financial institutions will also be recognised, if India is a member country.

Individuals will also be recognised lenders, to the extent that they are foreign equity holders, or they subscribe for bonds or debentures listed abroad.

Generally, these changes increase the number of lending options available for borrowers and should further allow the entry of various new lenders.

2.4 End Use Restrictions

Under the New ECB Policy, we note that the end restrictions on the use of ECB are broadly similar to the previous framework: real estate activities; investments into the capital markets; equity investments; and on-lending remain prohibited.

We do draw your attention to the permissible use by an Indian borrower of ECB for both working capital and general corporate purposes, if it is raised from a foreign equity holder.

However, the ability to refinance and repay other Rupee denominated loans has been narrowed and it is now only permissible if the ECB is raised through an inter-company loan from a foreign equity holder.

We note that for the purposes of the New ECB Policy, a foreign equity holder is defined to mean:

  1. a direct foreign equity holder, holding at least a 25 per cent equity in the Indian borrower; or
  2. an indirect foreign equity holder, holding a minimum 51 per cent indirect equity hlding in the Indian borrower; or
  3. a group company with a common overseas parent.

2.5 Minimum Average Maturity Period

The previous framework provided for multiple minimum average weighted maturities, depending upon the amount of borrowing.

However, under the New ECB Policy, the RBI has kept the minimum average maturity period at 3 (three) years for all ECBs, irrespective of the amount borrowed.

Nevertheless, if a manufacturer raises overseas debt of up to USD 50 million in a financial year, the minimum average maturity period will be 1 (one) year.

Further, any ECBs raised from a foreign equity holder utilised for specific purposes3 will have a minimum average weighted maturity of 5 (five) years.

2.6 Borrowing Limit

The previous framework provided for individual limits for the amount of ECB which may be raised in a financial year under the automatic route. ECB proposals beyond those limits came under the approval route.

Under the New ECB Policy, existing sector wise limits have now been replaced, and all eligible borrowers may now raise ECBs of up to USD 750 million or its equivalent in any particular financial year under the automatic route.

In the case of any FC ECB inter-company loan raised under the automatic route from a direct foreign equity holder, note that the ECB liability to equity ratio cannot exceed 7:1.

However, an exception has been made in the context where existing ECB liabilities (in aggregate with the new loan) of less than USD 5 million. Note further that any applicable sectoral debt to equity caps also need to be observed.


While the New ECB Policy is part of the on-going efforts of the Government of India to rationalise and liberalise multiple regulations framed under the Foreign Exchange Management Act, 1999, it raises some interesting consequences.

The Government appears to be opening up the debt market to attract potential foreign currency inflows by significantly expanding the list of eligible borrowers. While prima facie, this might be a positive step forward, in light of potential currency depreciation against the dollar, Indian borrowers will need to carefully consider hedging options and the cost of those hedging options to protect against future currency risk.

The additional requirement imposed on recognised lenders to be a resident of FATF or IOSCO compliant countries should strengthen the anti-money laundering and anti-terrorism financing frameworks, though having said that, in the case of inter-company loans, there appears to be no requirement for the foreign equity holder to be resident in such a compliant jurisdiction.

Notwithstanding the relaxation of the rules, and the encouraging developments generally in the insolvency resolution process, foreign lenders are likely to continue to view the difficulty in enforcing security in an event of default situation, question marks relating to mandatory prepayment events occuring during any lock-in period and the complexity of entering into water-tight intercreditor relationships with existing lenders as lingering concerns.

Critically, refinancing options for Indian corporates have essentially been narrowed. Under the previous ECB framework, companies were able to refinance rupee denominated debt with Track II or Rupee Denominated Bonds. However, under the New ECB Framework, Rupee denominated debt can now only be refinanced in the local market, or through an inter-company loan from a foreign equity holder.

Finally, with a view to further rationalising the regulation of debt instruments in general, we would recommend reviewing the ECB framework in the context of the regime for subscription for non convertible debentures by FPIs. In particular, we raise the question about the intent and purpose of continuing separate tracks?


1. Available at dated December 5, 2018

2. A.P. (DIR Series) Circular No. 17 available at

3. Please refer to point 2.1(v) of the New ECB Framework available at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
DNV & Co
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
DNV & Co
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions