The RBI’s proposed overhaul of the ECB Regulations represents more than just a regulatory update. The proposal moves away from the prescriptive regime to a principle-based regime, which shall result in a potential transformation in India’s cross-border capital framework.

Amongst other benefits, these changes, if implemented, could reshape how Indian corporates fund overseas acquisitions, group restructurings, and strategic expansions.

For years, India’s outbound M&A narrative had been driven by ambition, but constrained by rigidity in funding. The proposed framework seeks to bridge that gap by aligning India’s external borrowings regime with global standards.

The draft overhaul introduces transformative rationalizations:

These changes, if finalized, could boost net ECB inflows, already up 64% YoY to $4.6 billion in Q1 FY26 from the $61 billion recorded in FY25.

The proposed amendments are a decisive shift toward liberalisation and alignment with global practices.

ECB proceeds can now be deployed for overseas acquisitions, investment in foreign subsidiaries or JVs, and corporate restructuring, subject to applicable sectoral laws. For example, manufacturing entities linked with PLI schemes can now deploy these monies for overseas M&A and fuel its exports using India as a manufacturing base. The removal of all-in-cost ceilings will allow pricing to be negotiated freely, in line with international benchmarks. Net-worth linked limits shall allow entities which have healthy balance sheets to borrow 300% of their net worth without diluting ownership or equity.

Collectively, these measures democratise access to foreign capital, particularly for complex corporate finance and acquisition-led growth.

Why this is transformative for M&A activity

The implications for M&A financing are far-reaching. Under the earlier regime, Indian acquirers often faced roadblocks due to limited funding sources and high domestic borrowing costs. This led to dependency on:

1. Internal accruals or promoter funding, which limited the deal size.
2. Formation of complicated structures involving overseas subsidiaries or SPVs.
3. Delayed or fragmented financing, undermining deal competitiveness.

The proposed liberalization changes proceed in multiple ways, such as:

1. Access to cheaper offshore debt:
   
   Global credit markets often provide lower-cost capital compared to the domestic rupee borrowings, especially for investment-grade or well-rated groups. This can materially improve deal economics and valuation viability.
   
   
2. Improved deal execution certainty:
   
   Direct availability of ECB funding for acquisitions reduces the need for intermediate layering or bridge structures, resulting in cleaner, faster execution and higher deal credibility with global counterparties.
   
   
3. Participation of private credit and institutional lenders:
   
   The expanded lender base enables funds and non-bank institutions to provide acquisition financing directly. This will deepen India’s cross-border credit ecosystem and facilitate larger, more complex buyouts.

Macroeconomic and policy perspective

At a macro level, these reforms reflect a policy transition from protectionism to measured openness. The underlying objectives appear to be:

1. Reducing India’s cost of capital and dependence on domestic banking liquidity.
   
   
2. Enhancing global competitiveness by empowering Indian enterprises to acquire brands, technology, and market access abroad.
   
   
3. Encouraging capital market integration and fostering long-term relationships with global lenders.
   
   
4. Facilitating corporate consolidation in sectors requiring scale and capital efficiency.
   
   
5. Positioning India as a confident, globally connected economy, capable of managing external risks with maturity.

If accompanied by prudent oversight, including hedging norms and leverage monitoring  the framework could strengthen India’s external resilience while deepening its integration with global capital markets.

Balanced outlook

While the liberalisation offers major opportunities, it also demands responsibility. Unchecked foreign leverage or inadequate hedging could expose corporates to currency and refinancing risks. The RBI will likely complement these reforms with enhanced disclosure and prudential oversight.

Nevertheless, the direction is clear: from control to facilitation, from protection to participation.

1. Scale-up for outbound M&A:
   
   Enhanced borrowing limits and reduced maturity will enable Indian corporates to target larger acquisitions particularly in technology, manufacturing, energy, and consumer sectors without relying solely on equity dilution.
   
   
2. Tax and structuring efficiency:
   
   Properly structured ECBs can provide interest deductibility advantages, efficient repatriation planning, and better cash flow matching with the acquired entity’s earnings.
   
   
3. Increased competition and innovation in deal financing:
   
   With more players and instruments in the mix from mezzanine debt to hybrid funding, Indian M&A could witness improved depth, flexibility, and pricing dynamics.

Together, these changes can transform India from a capital-constrained buyer to a competitive global acquirer, capable of executing strategic acquisitions on par with peers in advanced markets.

In perspective

The proposed ECB reforms signify more than policy modernisation. They mark a structural evolution in how India mobilises global capital. They are a statement of confidence that Indian enterprise is ready to operate, compete, and grow on the world stage.

For advisors, this change expands the landscape for cross-border structuring, transaction financing, and risk advisory. For corporates, it opens the door to capital abundance — and with it, the ability to pursue growth without constraint.

India is signaling that it’s ready to move from capital-seeking to capital-commanding responsibly, competitively, and globally. To know more about the above impact and for us to evaluate the likely impact on your imminent transaction, please write to us on contactus@waycaadvisors.com.

_{Published by Nishant Shanker and Meenakshi Chadha}.