The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 (Notification No. FEMA 3(R)(5)/2026-RB, dated February 9, 2026, and published in the Official Gazette on February 16, 2026).
Key Highlights of the Amendments
1. Expanded Eligible Borrowers and Recognized Lenders
• Broader inclusion of entities (e.g., any person resident in India except individuals, subject to incorporation/registration under applicable laws).
• Enhanced recognition of foreign lenders to increase funding options.
2. Revised Borrowing Limits
• Eligible borrowers can now raise ECBs up to the higher of:
• USD 1 billion (outstanding ECBs), or
• Total outstanding borrowings (external + domestic) up to 300% of net worth (based on the last audited standalone balance sheet).
3. Removal of Cost of Borrowing Restrictions
• All-in-cost ceilings (previously benchmark + margin) have been removed.
• Pricing is now fully market-driven.
• For refinancing, the earlier requirement of lower cost/credit spread has also been eliminated.
4. Rationalized Minimum Average Maturity Period (MAMP)
• Uniform MAMP of 3 years for most ECBs.
• Manufacturing sector borrowers: MAMP between 1–3 years, subject to outstanding ECB ≤ USD 150 million.
• Longer maturity requirements (e.g., 5/7/10 years in older tracks) have been streamlined or removed.
5. Refinancing Provisions
• Refinancing (full or partial) of existing ECBs by fresh ECB is permitted.
• Safeguard: Refinancing must not result in failure to meet the MAMP requirement applicable to the original borrowing (or weighted outstanding maturity for multiple borrowings).
• This allows flexibility in rollovers while preventing undue shortening of the original maturity profile.
6. Strengthened End-Use Restrictions (New Regulation 3A)
• Detailed prohibitions/restrictions introduced to prevent misuse, including:
• Investment in chit funds, Nidhi companies.
• Real estate business (with limited exceptions, e.g., clarified for land/immovable property in permitted cases).
• Capital market transactions (except certain strategic corporate actions).
• On-lending restrictions in some cases.
• Repayment of certain restricted domestic loans or NPAs.
• End-uses now more tightly monitored for productive purposes.
7. Simplification of Reporting and Compliance
• Streamlined requirements (e.g., updated forms, event-based reporting via ECB-2).
• Enhanced clarity on security creation, conversion to non-debt instruments, corporate actions.
Pushkar Mer 