Start with the date of the loan registration number
External commercial borrowing (ECB) can fund an eligible Indian entity through a recognised lender in foreign currency or Indian rupees. The February 2026 amendment to the Foreign Exchange Management (Borrowing and Lending) Regulations replaced Schedule I. An LRN obtained before 16 February 2026 keeps the earlier substantive rules, but reporting follows the amended regulations. Check the transition rules for an existing loan and do not use the old USD 750 million annual automatic-route limit for new facilities covered by the revised Schedule. The designated Authorised Dealer Category I bank checks the facility against the applicable rules.
| Check | Revised Schedule I | Evidence to retain |
|---|---|---|
| Borrower | A person resident in India other than an individual, incorporated, established or registered under a Central or State Act, and permitted to borrow under the applicable law. A borrower in restructuring or resolution needs specific permission in the applicable plan. | Constitution, applicable borrowing authority and plan, where relevant. |
| Lender | A person resident outside India, an overseas branch of an entity whose lending business RBI regulates, or a financial institution or its branch in an IFSC. | Residence and regulated status where applicable; related-party analysis. |
| Borrowing headroom | Use the higher of the two routes: outstanding ECB up to USD 1 billion, or total outstanding domestic and external borrowing up to 300% of net worth per the last audited standalone balance sheet. Specified financial-sector regulated borrowers are outside this limit. | Compute the two tests using consistent currency data and include the proposed non-refinancing ECB. Exclude non-fund-based credit and funds raised via mandatorily convertible securities as specified. |
| Maturity | Minimum average maturity period (MAMP) generally three years. An eligible manufacturer may use the one-to-three-year band if aggregate outstanding ECBs in that band do not exceed USD 150 million. Specific exceptions apply. | Cash flow schedule and weighted average maturity under Annex I; check option exercise dates. |
| Cost | Cost must be in line with prevailing market conditions. An eligible facility below three years must meet the trade-credit cost ceiling; a fixed-rate loan is tested using the corresponding floating-rate swap plus spread. Related-party borrowing must be at arm’s length. | Comparable rates, fees, guarantees and any swap; distinguish quoted coupon from total cost. |
End use and hedging
Review regulation 3A for the actual expenditure. It restricts real estate business and farmhouse construction, and sets specific conditions for construction-development and industrial parks. Speculative land trading is not a permitted substitute for a project. The regulation also restricts specified agriculture and plantation activity, trading in transferable development rights, securities transactions outside defined strategic corporate actions, repayment of an INR loan used for a prohibited purpose or classified as an NPA, and on-lending for prohibited purposes. Ordinary working capital or refinancing of permitted domestic debt is not subject to the old standalone five-, seven- and ten-year categories under the revised rules. Check the actual maturity, end use and facility facts.
INR and foreign-currency facilities allocate exchange-rate exposure differently. Document hedging, treasury limits and sector or legacy requirements with the designated bank. Do not assume the historic 70% infrastructure hedge requirement for facilities averaging less than five years applies universally to new ECBs, or that a hedge eliminates every cash-flow and counterparty risk.
From agreement to drawdown and reporting
- Agree the terms and track the underlying permissions, end use, settlement, net worth and pricing evidence. Identify and document the recognised lender.
- Submit Form ECB 1 through the designated AD Category I bank. Draw down only after RBI allots the loan registration number (LRN).
- Route proceeds according to the purpose and applicable account rules. For permitted INR expenditure, credit the designated domestic INR account by the end of the succeeding month from receipt. For permitted foreign-currency expenditure, use an eligible foreign-currency account subject to the applicable conditions.
- Use Revised Form ECB 1 for changes to reported loan parameters, within seven calendar days from the end of the month the change took effect. Use Form ECB 2 within seven calendar days from the end of the month of receipt, debt servicing or another event altering outstanding borrowing, as applicable. Confirm treatment of historical filings and submission procedures with the designated bank.
- For a late filing, submit the return and apply the RBI late submission fee (LSF) framework where available. A reporting fee does not regularise a substantive contravention. The designated AD bank has a separate seven-calendar-day forwarding period after receiving a complete return.
Seven worked examples
The figures are illustrative. The approval, market price, withholding and compliance outcomes depend on the actual transaction and are not assumed in the examples.
1. USD 20 million for machinery
Assume a single USD 20 million draw and bullet repayment at five years, funding equipment quoted at EUR 18.5 million. These amounts are equivalent only at an assumed USD 1.081081 per euro before fees. At a 4.80% illustrative USD reference plus 280 basis points, the floating coupon is 7.60%, or USD 1.52 million for a full year at unchanged rates and principal. Compared with an INR quote of 10.50%, the coupon difference is 2.90 percentage points, not a realised saving. Compare fees, hedge costs and currency exposure. The 9.80% arithmetic result from adding 500 basis points to 4.80% is not the general ceiling for a new five-year loan under the amended rules.
2. Parent stake drops from 28% to 19%
For a USD 10 million facility with five-year average maturity, dilution of a direct holding from 28% to 19% is a drop of nine percentage points and moves it below the historic 25% direct foreign-equity-holder test. Check when the LRN was issued, the specific original route, any other way the lender qualifies and the contract. For a new facility under revised Schedule I, a non-resident lender is not automatically disqualified by falling below 25%. Check whether it remains related and document arm’s-length pricing. An approval, breach or compounding outcome is not automatic.
3. USD 4 million diverted to speculative land
Of a USD 15 million ECB approved for a qualifying industrial project, an assumed USD 4 million used for speculative land resale is 26.67% of the facility; USD 11 million is the remainder. Stop the diversion, reconcile the trail and notify the appropriate compliance contacts and bank. The facts support a prohibited-end-use concern, not a predetermined cancellation, personal penalty or compounding result.
4. Hedging a USD 50 million exposure
Assume an infrastructure borrower with USD 50 million principal and no natural hedge. A 75% principal hedge covers USD 37.50 million and leaves USD 12.50 million of principal unhedged. If a grandfathered or otherwise applicable rule or contract requires 70%, that is USD 35 million of this principal alone; also check interest, tenor and the actual rule’s exposure base. A five-year cross-currency swap must be assessed against the loan’s repayment and rate reset schedule.
5. Replacing a ₹250 crore domestic capex loan
Assume the domestic loan financed a permitted end use and is not an NPA. USD 30 million at ₹83.3333 per dollar approximates ₹250 crore before fees. A domestic coupon of 11.25% on ₹250 crore is ₹28.125 crore per full year. At an assumed USD reference of 4.80% plus 350 basis points, the ECB coupon is 8.30%, or ₹20.75 crore on a constant ₹250 crore equivalent. The gross coupon difference is ₹7.375 crore, before hedging, fees, exchange changes, withholding and different amortisation. An eight-year final tenor alone does not establish MAMP. Distinguish repayment of a domestic INR loan from refinance of an existing ECB under paragraph 12.
6. Five late ECB 2 returns
Assume each return is a separate delayed report under one LRN and that an RBI advice applies. Compute ₹7,500 plus 0.025% × A × n for each delayed return, subject to the applicable cap and rounding; A is the amount involved and n is the delay in years rounded upward to the nearest month, expressed to two decimal places; a flat ₹50,000 per month is not the general rule. The fixed component of ₹7,500 on five separately delayed ECB 2 returns is ₹37,500 before the applicable variable component, cap and rounding. Confirm the final advice with the bank.
7. Year-end accounting for a USD 40 million loan
For a company applying AS 11 and Schedule III Division I, assume USD 40 million remains outstanding, the carrying exchange rate was ₹82/USD, and closing is ₹83/USD. The liability rises from ₹328 crore to ₹332 crore, a ₹4 crore exchange difference before any applicable exception or hedge accounting. Use the correct classification and disclose current maturities of long-term borrowings separately under the applicable Division I presentation. A separate Ind AS analysis is needed for entities using that framework.
Frequently asked questions
1. Is USD 750 million still the annual limit?
It describes the historical framework. For a new loan under revised Schedule I apply the outstanding ECB or total outstanding borrowing tests and any applicable exemption.
2. Can the funds buy land?
Check the intended activity against regulation 3A. Land trading is different from a qualifying development project or industrial park meeting the stipulated conditions.
3. Is a five-year term enough?
Use actual drawdown and repayment dates and amounts to compute weighted average maturity. Apply the relevant rule and any exception.
4. Is the general pricing cap SOFR plus 500 basis points?
No. The revised rules use prevailing market conditions generally, with a specific trade-credit ceiling for eligible ECBs of less than three years and a related-party arm’s-length requirement.
5. May a borrower draw down before receiving an LRN?
No. Obtain the LRN through the designated bank first and retain the filing and acknowledgement.
6. What should treasury reconcile after drawdown?
Tie the LRN to the agreement, proceeds, end use, changes, servicing, hedge and ledger. Keep the statutory return and accounting reconciliations separately.
Sources
- Gazette: Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026
- RBI Master Direction: ECB, Trade Credits and Structured Obligations
- RBI circular of 30 March 2026: ECB reporting and late fees
- RBI late submission fee framework of 30 September 2022
- Companies (Accounting Standards) Rules, 2021: AS 11
- MCA: Schedule III amendments