Foreign Exchange Management Borrowing and Lending Regulations Amendment

Relative A.P. (DIR) circular: A.P. (DIR Series) Circular No. 22 dated February 16, 2026

RESERVE BANK OF INDIA FOREIGN EXCHANGE DEPARTMENT CENTRAL OFFICE Mumbai 400 001 Notification No. FEMA 3(R)(5)/2026-RB February 09, 2026

Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026

In exercise of the powers conferred by sub-section (2) of section 6, sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India hereby makes the following amendments to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Notification No. FEMA 3(R)/2018-RB dated December 17, 2018) (hereinafter referred to as the 'Principal Regulations'), namely:

1. Short title and commencement – (1) These regulations shall be called the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. (2) They shall come into force from the date of their publication in the Official Gazette. (3) External Commercial Borrowings for which a Loan Registration Number (LRN) has been obtained before these regulations coming into effect shall continue in compliance with the then applicable regulations, except reporting which shall be undertaken as per the amended regulations.

2. Amendment to Regulation 2 – In the Principal Regulations, regulation 2 shall be substituted by the following regulation, namely:- "2. Definitions – (1) In these regulations, unless the context otherwise requires: (a) "Act" means the Foreign Exchange Management Act, 1999 (42 of 1999); (b) "arm's length basis" means a transaction between two related parties that is conducted as if the transacting parties were unrelated, so that there is no conflict of interest; (c) "Authorised Bank" shall have the same meaning as assigned to it in the Foreign Exchange Management (Deposit) Regulations, 2016; (d) "Authorised Dealer (AD)" means a person authorised as an Authorised Dealer under sub-section (1) of section 10 of the Act; (e) "benchmark rate" means any widely accepted interbank rate or Alternative Reference Rate (ARR) of 6-month tenor, applicable to the currency of borrowing, in case of foreign currency (FCY) external commercial borrowing (ECB) / trade credit (TC). Further, it means prevailing yield of the Government of India security of corresponding maturity in case of Indian Rupees (INR) denominated ECB / TC; (f) "control" – (i) in case of companies, control shall have the same meaning as assigned to it in the Companies Act, 2013; and (ii) in case of LLPs, control means the right to appoint majority of the designated partners, where such partners, with specific exclusion to others have control over all the policies of the LLP. (g) "cost of borrowing" means rate of interest, other fees, expenses, charges, guarantee fees and export credit agency charges, whether paid in FCY or INR, but shall not include commitment fees and statutory taxes payable in India; (h) "Designated Authorised Dealer (AD) Category I Bank" means the AD Category I bank designated by the borrower for meeting the reporting requirements in respect of ECB and TC and monitoring of such transactions; (i) "exchange earners' foreign currency (EEFC) account" shall have the same meaning as assigned to it in the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015; (j) "external commercial borrowing (ECB)" means borrowing by an eligible borrower from a recognised lender in accordance with Schedule I to these Regulations; (k) "external commercial lending (ECL)" means lending by a person resident in India to a person resident outside India in accordance with Schedule III to these Regulations; (l) "Foreign Currency Non-Resident (Bank) (FCNR (B)) account" shall have the same meanings as assigned to it in the Foreign Exchange Management (Deposit) Regulations, 2016; (m) "financial sector regulator" means a financial regulatory body established under any law in force in India and includes the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and Development Authority; (n) "foreign currency convertible bond (FCCB)" shall have the same meaning as assigned to it in the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993; (o) "foreign currency exchangeable bond (FCEB)" shall have the same meaning as assigned to it in the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008; (p) "Housing Finance Institution" shall have the same meaning as assigned to it in the National Housing Bank Act, 1987 (53 of 1987); (q) "Indian Entity" means a company incorporated in India under the Companies Act, 2013 (18 of 2013) or a body corporate established in India under a Central / State Act or a Limited Liability Partnership formed and registered in India under the Limited Liability Partnership Act, 2008; (r) "Industrial Park" means a project in which quality infrastructure in the form of plots of developed land or built-up space or a combination with common facilities is developed and made available to all the allotee units for the purpose of industrial activity; Explanation : Common Facilities refers to facilities available for all the units located in the industrial park, and include facilities of power, roads (including approach roads), railway line / sidings including electrified railway lines and connectivity to the main railway line, water supply and sewerage, common effluent treatment, common testing, telecom services, air conditioning, common facility buildings, industrial canteens, convention / conference halls, parking, travel desks, security service, first aid centre, ambulance and other safety services, training facilities and such other facilities meant for common use of the units located in the Industrial Park. (s) "infrastructure sector" shall have the same meaning as assigned to it in the 'Harmonised Master List of Infrastructure Sub-Sectors' approved by Government of India vide Notification F. No. 13/06/2009-INF and as amended from time to time. For the purpose of these regulations, "Exploration, Mining and Refinery" sectors will be deemed as infrastructure sector; (t) "International Financial Service Centre (IFSC)" shall have the same meaning as assigned to it under the International Financial Services Centres Authority Act, 2019 (50 of 2019); (u) 'Liberalised Remittance Scheme' means the scheme formulated in terms of circular A.P. (DIR Series) Circular No. 64 dated February 4, 2004; (v) "Non-Resident External (NRE) Account" shall have the same meaning as assigned to it in the Foreign Exchange Management (Deposit) Regulations, 2016; (w) "Non-Resident Ordinary (NRO) Account" shall have the same meaning as assigned to it in the Foreign Exchange Management (Deposit) Regulations, 2016; (x) "National Housing Bank" shall have the same meaning as assigned to it in the National Housing Bank Act, 1987 (53 of 1987); (y) "net worth" – (i) In case of companies, net worth shall have the same meaning as assigned to it in the Companies Act, 2013 (18 of 2013); and (ii) In case of other entities, net worth shall be the sum of the funds recorded in the balance sheet under capital and undistributed profits after deducting therefrom the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the last audited balance sheet. (z) "Non-Resident Indian (NRI)" shall have the same meanings as assigned to it in the Foreign Exchange Management (Deposit) Regulations, 2016; (aa) "Overseas Citizen of India (OCI) Cardholder" shall have the same meaning as assigned to it in the Citizenship Act, 1955; (ab) "real estate business" means purchase, sale or lease of land or immovable property with a view to earning profit from there and does not include purchase, sale and lease (not amounting to transfer) of land or immovable property for the following purposes: (i) construction and development of industrial parks, integrated townships and SEZ; (ii) development of new industrial project, modernisation and expansion of existing units; (iii) any activity under 'infrastructure sector'; (iv) construction-development project; (v) commercial or residential properties for own use of the borrower; (vi) real estate broking services. Explanation: (a) Construction-development projects includes development of townships, construction of residential /commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure, townships; (b) Transfer, in relation to real estate business includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (v) any transaction, by acquiring capital instruments in a company or by way of any agreement or any arrangement or in any other manner whatsoever, which has the effect of transferring, or enabling the enjoyment of, any immovable property. (ac) "related party" means an entity which qualifies as a related party as per the provisions of the Companies Act, 2013 (18 of 2013). For a person other than a company, this definition shall apply mutatis mutandis; (ad) "relative" shall have the same meaning as assigned to it in the Companies Act, 2013 (18 of 2013); (ae) "securities" shall have the same meaning as assigned to it in the Securities Contracts (Regulation) Act, 1956; (af) "Special Economic Zone (SEZ) shall have the same meaning as assigned to it in the Special Economic Zones Act 2005; (ag) "Special Non-Resident Rupee Account (SNRR) account" shall have the same meanings as assigned to it in the Foreign Exchange Management (Deposit) Regulations, 2016; (ah) "trade credit (TC)" means credit extended by the overseas supplier or financial institution for permissible imports into India and includes both suppliers' credit and buyers' credit; Explanation: Suppliers' credit relates to the credit for imports into India extended by the overseas supplier, while buyers' credit refers to loans for payment of imports into India arranged by the importer from an overseas bank or financial institution. (ai) "transferable development rights" shall have the same meaning as assigned to it in the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. (2) The words and expressions used but not defined in these Regulations shall have the same meaning respectively assigned to them in the Act.".

3. Insertion of Regulation 3A – In the Principal Regulations, after the existing regulation 3, the following regulation shall be inserted, namely:- "3A. Restriction on end-use of borrowed funds:- (1) Funds borrowed in terms of these Regulations shall not be utilised for the following purposes in India: (a) Chit funds; (b) Nidhi Company; (c) Real estate business and construction of farmhouses, provided that: (i) in case of a borrowing for construction-development project, the borrower shall sell plots only after ensuring development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage. (ii) in case of borrowing for industrial parks, such parks shall comprise of a minimum of 10 units with no single unit occupying more than 50 percent of the allocable area and the minimum percentage of the area to be allocated for industrial activity shall not be less than 66 percent of the total allocable area. Explanation: "Allocable area" in the Industrial Park means— (i) in the case of plots of developed land - the net site area available for allocation to the units, excluding the area for common facilities. (ii) in the case of built-up space - the floor area and built-up space utilized for providing common facilities. (iii) in the case of a combination of developed land and built-up space - the net site and floor area available for allocation to the units excluding the site area and built-up space utilized for providing common facilities. (d) Agricultural and animal husbandry, except – (i) Floriculture, horticulture and cultivation of vegetables and mushrooms under controlled conditions; (ii) Development and production of seeds and planting material; (iii) Animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture; and (iv) Services related to agro and allied sectors Explanation: The term 'under controlled conditions' covers the 'cultivation under controlled conditions' for the categories of floriculture, horticulture, cultivation of vegetables and mushrooms which is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where micro-climatic conditions are regulated anthropogenically. (e) Plantation except tea, coffee, rubber, cardamom, palm oil tree, olive oil tree plantation (f) Trading in Transferrable Development Rights (TDR); (g) Transacting in listed/unlisted securities, except for transactions undertaken by an Indian entity for corporate actions such as merger, demerger, amalgamation, arrangement, or acquisition of control in accordance with the Act under which the entity is incorporated/established, Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Insolvency and Bankruptcy Code, 2016, as applicable; Explanation: For sub-regulation 1(g), borrowing shall be availed for strategic purposes only, i.e. those driven by the core objective of creating long-term value through potential synergies, rather than for short-term gains. (h) Repayment of a domestic INR loan (i) which was availed for an end-use restricted under this regulation; or (ii) which is classified as a non-performing asset (NPA) as per the applicable prudential norms. (i) On-lending for any of the purposes for which funds cannot be borrowed and utilised in this regulation.

4. Amendment of Regulation 6(B) – In regulation 6(B) of the Principal Regulations, sub-regulations (vi) shall be substituted by the following, namely:- "(vi) A person resident in India being an individual may borrow in INR from an NRI or a relative who is an OCI cardholder for utilization in India, subject to the following terms and conditions: (a) The amount of loan should be received either by inward remittance from outside India or by debit to NRE / NRO / FCNR(B) / SNRR account of the lender; and (b) Borrowing shall be on non-repatriation basis; i.e. payment of interest and repayment of principal shall be made only to the NRO account of the lender."

5. In the Principal Regulations, Schedule I shall be substituted by the following, namely:-