Banking and Finance Quarterly Milestones (January-March 2026)

The Reserve Bank of India (RBI) has notified the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026, overhauling India’s external commercial borrowings (ECB) regime. The new framework broadens borrower eligibility to persons resident in India (other than individuals) established under a Central or State Act, increases borrowing limits to the higher of USD 1 billion or 300% of net worth, introduces significant operational flexibility by removing the “all-in cost” ceiling in favour of market-linked pricing and standardises a three-year minimum maturity period. It also relaxes end-use restrictions to permit ECB proceeds to be used for certain domestic acquisitions involving controlling stakes and for specified real estate projects, including land acquisition for development. The framework further simplifies compliance by moving to an event-based reporting regime rather than periodic filings.

The changes are expected to enhance access to offshore funding and deepen India’s foreign currency debt markets. However, some areas, particularly those related to acquisition financing conditions and compliance, may require further regulatory clarity.

(To read our detailed update on the new framework, click here.)

The RBI introduced a framework permitting banks to finance acquisitions through the Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (2026 Directions). This move marks a significant shift in Indian banking regulation from earlier restrictions on funding equity acquisitions.

Effective 1 April 2026, the framework enables banks to support acquisitions of both listed and unlisted companies, including refinancing of existing acquisition finance or target’s existing debt where it is integral to the transaction, subject to defined eligibility criteria and prudential safeguards such as minimum net worth and profitability thresholds for acquirers, exposure caps, leverage limits, and security requirements.

These new rules are expected to broaden financing avenues for banks and align India’s lending landscape more closely with global practices.

(To read our detailed update on the 2026 Directions, click here.)

The RBI has notified the Foreign Exchange Management (Guarantees) Regulations, 2026, replacing the two-decade-old Foreign Exchange Management (Guarantees) Regulations, 2000, establishing a revised framework governing the issuance of guarantees in cross-border transactions.

A key shift under the new regime is the departure from a case-by-case approval-driven approach. Cross-border guarantees are now generally permitted, subject to two core conditions: (i) the underlying transaction must comply with the Foreign Exchange Management Act, 1999 (FEMA), and (ii) the parties must satisfy the eligibility criteria prescribed under the FEMA borrowing and lending framework.

The new regulations also introduce clearer and more comprehensive definitions of key concepts, including “guarantee”, “surety”, “principal debtor” and “creditor”. These expanded definitions intend to provide greater certainty for complex financing arrangements and to ensure that structures involving layered security packages, counter-guarantees and other credit support mechanisms are appropriately regulated.

Certain transactions remain outside the scope of the regulations. These include guarantees issued by authorised dealer banks that are fully collateralised by non-residents, guarantees issued by Indian agents of foreign shipping and airline companies in relation to statutory obligations, and guarantees where both the surety and the principal debtor are persons resident in India.

The new framework also rationalises the treatment of structured obligations since related references have been removed from the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations, consolidating the treatment of inbound guarantees within the new regulations. This move harmonises the treatment of guarantee structures across the foreign exchange regime.

Overall, this framework is expected to simplify the regulatory treatment of cross-border guarantees and bring greater coherence to India’s foreign exchange regime for international financing transactions.

(To read our earlier update on how the new guarantees regulations are likely to promote structured compliance and enforcement, click here.)