India’s Central Bank Proposes Major Reforms to Foreign Borrowing Rules

The Reserve Bank of India (RBI) has put forward sweeping reforms to the framework governing External Commercial Borrowings (ECBs), a move that could significantly reshape how Indian companies raise money from abroad. According to the draft guidelines, Indian firms would be allowed to borrow up to USD 1 billion or 300% of their net worth under the automatic route, whichever is higher. Currently, any borrowing above USD 750 million requires special approvals. By more than doubling the borrowing limit, the RBI is signaling its intent to boost liquidity for businesses and ease reliance on domestic bank credit. Another critical reform is the removal of fixed cost caps on most ECBs. Until now, borrowers were subject to a ceiling on the interest rates they could pay to foreign lenders—typically a spread over LIBOR or SOFR. The RBI now proposes to leave pricing to market forces, arguing that competitive conditions will naturally regulate costs. Short-term borrowings of less than three years, however, would continue to face some cost restrictions to prevent speculative inflows. In a further liberalization step, the RBI has proposed to open ECB access to all India-incorporated entities, not just those eligible for foreign direct investment. This includes companies undergoing restructuring, those under bankruptcy resolution, or even entities facing regulatory scrutiny—provided they make the required disclosures or have approved resolution plans. This measure is expected to provide a much-needed lifeline for distressed firms seeking to refinance debt or attract overseas capital. The move comes at a time when global investors have shown renewed interest in India, thanks to the country’s robust growth trajectory and comparatively stable macroeconomic indicators. With domestic interest rates still relatively high, the reforms could allow Indian companies to tap cheaper funds abroad, diversify financing sources, and improve their global competitiveness. However, experts caution that greater access to foreign capital also brings risks. Excessive overseas borrowing can increase exposure to currency fluctuations, particularly if earnings are primarily in rupees while debt obligations are in dollars. Overleveraging by weaker firms could also strain balance sheets if global financial conditions tighten suddenly. Industry reaction has been cautiously optimistic. Corporate leaders in sectors like infrastructure, manufacturing, and IT services welcomed the reforms as a timely move that will ease capital constraints. Some bankers, however, have raised concerns about potential regulatory arbitrage, where companies might bypass domestic credit discipline by turning to external markets. The central bank has invited public feedback on the proposals until October 24, 2025, after which final guidelines will be issued. If implemented, analysts believe the reforms could attract billions in fresh capital inflows, deepen India’s integration with global financial markets, and strengthen the rupee by boosting investor confidence. Still, the RBI has emphasized that it will closely monitor capital flows and reserve the right to impose corrective measures if risks to financial stability arise.