Borrowing from GIFT City IFSC: IFSC Lenders Under the 2026 External Commercial Borrowing (ECB) Framework

For an Indian company, a loan from an IFSC Banking Unit in GIFT City is treated as an external commercial borrowing (ECB) under the applicable FEMA framework. This position remains unchanged under the 2026 rules. The key change came in February 2026, when the RBI revised the Schedule to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, expressly recognising IFSC financial institutions as eligible lenders. The amendments also revised key requirements relating to borrowing limits, minimum average maturity, borrowing costs and end-use restrictions

The Instrument

The Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026 were notified by the RBI on 9 February 2026 (Notification No. FEMA 3(R)(5)/2026-RB) and came into force on publication in the Official Gazette, which occurred on 16 February 2026. The RBI issued a corresponding A.P. (DIR Series) Circular (No. 22) on the same date.

The amendment includes a transitional rule: ECBs for which a Loan Registration Number (LRN) was obtained before the regulations took effect continue to be governed by the then-applicable regulations, except for reporting, which follows the amended regulations. Existing facilities are therefore not disturbed, but their reporting is.

IFSC Lenders are Now Expressly Recognised

Paragraph 2 of the substituted Schedule I states that an eligible borrower may raise ECB from:

• a person resident outside India;
• a branch outside India of an entity whose lending business is regulated by the RBI; and
• a financial institution or a branch of a financial institution set up in IFSC.

An Explanation ties the third category to the FEMA (International Financial Services Centre) Regulations, 2015, under which a “financial institution” set up in the IFSC and permitted or recognised as such is treated as a person resident outside India (Article 2).

The drafting removes an old source of doubt about the eligibility of financial institutions set up in GIFT City’s IFSC to act as lenders under the ECB framework. Previously, an IFSC lender’s eligibility had to be reasoned through its deemed non-resident status. It is now an expressly recognised category in its own right and may cover IFSC Banking Units, IFSC Banking Companies and finance companies or finance units, subject to the applicable regulatory requirements and the lender’s authorisation to undertake the lending activity.

What Else the Schedule Now Provides

Eligible borrowers. Any person resident in India other than an individual, incorporated, established or registered under a Central or State Act, provided ECB is permitted under the Act governing that person. A borrower under a restructuring scheme or corporate insolvency resolution process may raise ECB only if the plan specifically permits it. A borrower facing pending investigation, adjudication or appeal by a law-enforcement agency for a FEMA contravention may still raise ECB, without prejudice to the outcome, but must disclose the proceedings in Form ECB 1.

Currency and form. ECB may be denominated in foreign currency or in Indian rupees, and the currency may be switched, subject to the exchange-rate conditions in the Schedule. ECB covers any commercial borrowing arrangement involving payment of agreed interest and repayment of principal, and expressly includes FCCBs and FCEBs. Certain fundings are excluded from ECB, including trade credit with original maturity up to three years, export advances, debt instruments under the Debt Instruments Regulations, convertible notes and FVCI debt investments.

Borrowing limit. An eligible borrower may raise ECB up to the higher of outstanding ECB of USD 1 billion, or total outstanding borrowing (external and domestic) of up to 300% of net worth per the last audited standalone balance sheet. Non-fund-based credit and mandatorily convertible securities are excluded from outstanding borrowing. The limit does not apply to eligible borrowers regulated by financial sector regulators.

Maturity. A uniform minimum average maturity period of three years applies. Manufacturing-sector borrowers may raise ECB with an average maturity between one and three years, subject to an outstanding cap of USD 150 million. Call and put options are not exercisable before the MAMP is completed. The MAMP does not apply to conversion into non-debt instruments, repayment out of non-debt instrument proceeds received after drawdown, refinancing, waiver of debt, or repayment required for specified corporate actions such as merger, demerger, acquisition of control, resolution or liquidation.

Cost. The rigid all-in-cost ceiling is replaced by a market-conditions test: the cost of borrowing must be “in line with prevailing market conditions”. For ECBs with an average maturity of less than three years, the trade-credit cost ceiling applies. Prepayment charges and penal interest must likewise be in line with market conditions. ECB from a related party must be on an arm’s length basis, which matters directly where the IFSC lender is a group finance company.

Drawdown and use of proceeds. For Indian borrowers raising ECB through lenders in GIFT City’s IFSC, drawdown requires the LRN from the RBI through the designated AD Category I bank. Rupee-expenditure proceeds must be credited to an INR account in India with that bank by the end of the succeeding month, and may be parked pending use in an unencumbered fixed deposit of up to one year. Foreign-currency-expenditure proceeds may be held in an FCY account in or outside India, with similar parking rules.

Security. ECBs may be secured by charges over immovable, movable, financial and intangible assets, including intellectual property, in favour of the non-resident lender or a security trustee, and by guarantees issued in accordance with the Foreign Exchange Management (Guarantees) Regulations, 2026, subject to the conditions in the Schedule.

End-use: The Restrictions that Remain

New regulation 3A consolidates end-use prohibitions. Borrowed funds may not be used in India for chit funds; a Nidhi company; real estate business and construction of farmhouses, subject to specified carve-outs for construction-development projects and industrial parks; agricultural and animal husbandry activities, with detailed exceptions including controlled-condition horticulture, seed development, animal husbandry, pisciculture, aquaculture and apiculture, and agro-related services; plantations other than the listed crops; trading in transferable development rights; and transacting in listed or unlisted securities, except for corporate actions such as merger, demerger, amalgamation, arrangement or acquisition of control undertaken under the applicable law, the SEBI Takeover Regulations, the SARFAESI Act, 2002 or the Insolvency and Bankruptcy Code, 2016.

Commentary on the amendment notes that restrictions on working capital and general corporate purposes were removed. What survives is a list aimed at specific sectors and at securities trading.

What this Means for GIFT IFSC Lending Desks and Indian Borrowers

• Confirm the lender’s own permission. Being within the recognised-lender category is necessary but not sufficient. An IFSC Banking Unit lends under the IFSCA (Banking) Regulations, 2020; a finance company or finance unit lends under the IFSCA (Finance Company) Regulations, 2021. The lender must be authorised for the activity.
• Price related-party loans on arm’s length terms. Intra-group ECB from an GIFT City IFSC finance company now faces both this FEMA requirement and the transfer-pricing analysis under income-tax law.
• Re-test structures built on the old ceilings. The shift from a fixed all-in-cost ceiling to a market-conditions standard changes documentation and approval practice, and the borrowing limit is now expressed as the higher of an absolute cap and a net-worth multiple.
• Do not assume grandfathered facilities are untouched. Reporting for pre-amendment ECBs follows the new regulations.
• Check the withholding position. Interest payable by an IFSC unit on moneys borrowed on or after 1 September 2019 has its own treatment under Schedule VI of the Income-tax Act, 2025 (Article 7); an Indian borrower paying interest to an IFSC lender must analyse withholding under the ordinary rules.

As at 17 September 2026, the amended framework is in force. Because ECB operational detail is administered through RBI circulars and the AD bank, the current version of the regulations and the related directions should be confirmed before drawdown.

Frequently Asked Questions

1. Is a loan from a GIFT City IFSC Banking Unit treated as an ECB?

Yes. A loan from an IFSC Banking Unit to an eligible Indian borrower is treated as an external commercial borrowing (ECB), subject to the applicable FEMA framework.

2. What changed under the February 2026 ECB amendment?

The amendment expressly recognised IFSC financial institutions and their branches as eligible ECB lenders and revised key rules on borrowing limits, maturity, borrowing costs, security and end-use restrictions.

3. Can an IFSC finance company lend to its Indian group company?

Yes, provided the lender is authorised to undertake the lending activity and the borrowing complies with ECB requirements. Related-party ECB must be priced on an arm’s-length basis.

4. What is the minimum average maturity period for ECB?

The general minimum average maturity period (MAMP) is three years. Eligible manufacturing-sector borrowers may raise ECB with a maturity of one to three years, subject to the prescribed conditions and outstanding limit.

5. Can ECB proceeds be used for working capital or general corporate purposes?

The 2026 framework removed the earlier restrictions on these uses. However, borrowers must still comply with the specific end-use prohibitions under the amended FEMA regulations.

6. Do the new ECB rules apply to existing loans?

ECBs with a Loan Registration Number obtained before the amendment took effect generally remain governed by the earlier regulations, except that reporting must follow the amended framework.