RBI issues draft Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025

The Reserve Bank of India (RBI) has, vide press release dated October 03, 2025, issued the draft Foreign Exchange Management (Borrowing and Lending) (Fourth Amendment) Regulations, 2025 (Draft ECB Framework), to amend the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Regulations) and rationalize regulations pertaining to External Commercial Borrowing (ECB) thereunder.

The Draft ECB Framework proposes to introduce a revised framework that provides for expansion of eligible borrower and recognized lender base, rationalization of borrowing limits, rationalization of restrictions on average maturity period, removal of restrictions on the cost of borrowing for ECBs, review of end-use restrictions and simplification of reporting requirements.

In the specific context of financing of M&A transactions, the Draft ECB Draft ECB Framework Amendment proposes the insertion of a new Regulation 3A on ‘Prohibition on end-use of borrowed funds’. Under this Regulation 3A, while the list of prohibited end-uses includes inter-alia ‘Transacting in listed/unlisted securities’, however it clearly excludes the following from its scope:

1. Investment in terms of the Foreign Exchange Management (Overseas Investment) Rules, 2022 (as amended from time to time) and the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (as amended from time to time);

2. Merger, amalgamation, arrangement, or acquisition in accordance with the Companies Act, 2013 (as amended from time to time), Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (as amended from time to time) and Insolvency and Bankruptcy Code, 2016 (as amended from time to time); and

3. Investment in primary market instruments issued by non-financial entities for on-lending as mentioned thereunder.

If adopted, the relaxation in financing M&A transactions through ECBs will open another source of funding for domestic investors and may go a long way in promoting M&A activities in the coming years.

For more details, kindly refer to the Draft ECB Framework by clicking on this link.