Authors:
On October 1, 2025 the Reserve Bank of India (“RBI”) released its periodical Statement on
Developmental and Regulatory Policies. The October 2025 statement outlines a comprehensive list of 21 key agenda items relating to (i) RBI Regulations; (ii) Foreign Exchange Management; (iii) Consumer Protection and (iv) Financial Markets.
The notable items are review of the ECB Framework (Sr No 14) and Regulations for Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business (Sr No 15). The amendments proposed for these are covered in Annexures 1 and 2 respectively.
Our analysis on the same is as follows:
| S.No. | Agenda | Action Point | Outcome expected | BMR Comment |
|---|---|---|---|---|
| 1. | Expected Credit Loss (ECL) framework for provisioning | Draft directions issued. | This will push banks to provide for expected losses upfront instead of waiting for loans to go bad, making financial statements more realistic and future-aligned. | RBI is shifting from a backward-looking incurred loss model to a forward-looking ECL regime in line with IFRS 9 and norms relating to Current Expected Credit Losses. This will require banks to strengthen provisioning systems |
| 2. | Basel III Guidelines on Capital Charge for Credit Risk | Draft guidelines on implementation issued. | This change will ensure banks hold capital more in line with actual risk on their books, rather than using broad assumptions. | The revised capital norms are expected to move Indian banks toward more risk-sensitive capital computation, similar to advanced Basel frameworks used internationally. Banks may need to reassess internal ratings and collateral treatment to optimise capital efficiency. |
| 3. | Forms of Business and Prudential Regulation for Investments | Draft guidelines issued. | This will give banks and Non-Operative Financial Holding Companies more room to structure equity investments and set up their group entities. | By easing operational constraints for group investments, RBI is signalling a shift toward a holding-company structure akin to global banking conglomerates. Banks must balance newfound flexibility with governance controls to avoid group contagion risks. |
| 4. | Introduction of Risk Based Premium Framework for Deposit Insurance (FDIC) in India | Draft notification to be issued. | Deposit insurance costs will now reflect a bank’s risk profile, nudging weaker entities to strengthen their balance sheet. | Moving from a flat 12% premium to a risk-weighted model aligns India with jurisdictions like the EU and US FDIC regime. Banks with weaker asset profiles may see cost pressure, incentivising better risk discipline. |
| 5. | Review of Capital Market Exposures Guidelines for banks | Draft guidelines issued. | This will open more avenues for banks to fund capital market transactions, enhance the limit for lending by banks against shares, REITs, InvITs and remove regulatory ceiling altogether on lending against listed debt securities. | RBI’s proposal mirrors global capital markets where banks actively fund equity deals and structured finance. While it enables corporate acquisition financing, banks must recalibrate exposure concentration and collateral haircut policies. |
| 6. | Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism | Draft circular to withdraw these guidelines to be issued. | This will push large corporates to diversify funding sources and reduce over-dependence on bank loans. | RBI intends to phase out restrictive funding caps, allowing corporate exposures to be managed through market discipline rather than prescriptive limits. This aligns with global credit markets where pricing and syndication, not regulation, drive large borrower discipline. |
| 7. | Risk Weights on infrastructure lending by NBFCs | Draft regulations will be issued. | NBFCs may get capital relief on low-risk infra projects, making long-term financing slightly easier. | The shift to project-stage risk calibration mirrors global infrastructure financing norms used by multilateral lenders. NBFCs can unlock capital but need robust monitoring to justify lower risk weights. |
| 8. | Discussion Paper on Licensing Framework for new Urban Co-operative Banks (UCBs) | A discussion paper is to be issued. | The proposal aims to make it simpler for new UCBs to enter while ensuring regulatory guardrails stay intact. | Easing entry norms while tightening oversight indicates a move towards a tiered regulatory regime similar to global community banking models. New UCBs must expect higher transparency expectations despite easier licensing. |
| 9. | Consolidation of Regulatory Instructions | Draft of master directions to be issued. | This will reduce compliance fatigue by putting scattered instructions (on up to 30 areas for 11 types of regulated entities) into one master direction for easy reference. instructions | RBI’s master direction approach follows international regulatory simplification trends aimed at reducing fragmentation. Regulated entities should anticipate compliance audits based on harmonised standards. |
| 10. | Review of Restrictions on Transaction Accounts | Draft guidelines issued | Banks may get more flexibility in handling accounts of regulated borrowers, improving customer experience. | Rationalising transaction account rules aligns with global practices where regulated entities enjoy differentiated compliance tiers. Banks must update onboarding and monitoring systems to leverage the relaxed framework responsibly. |
| 11. | Foreign Currency accounts by Indian exporters- extension of time period for repatriation from accounts held in IFSC in India | Amendments to regulations to be issued. | Exporters will get more breathing room by having a longer window to bring back export proceeds from IFSC accounts. | Extending repatriation timelines from one month to three months aligns with offshore financial hub practices like DIFC and GIFT IFSC peers. This will encourage exporters to open accounts with IFSC banking units and increase forex liquidity. |
| 12. | Merchanting Trade Transactions (MTT) | Amendments to regulations to be issued. | Extending timelines for the period for forex outlay from four months to six months will reduce transaction pressure and help traders execute cross-border deals more efficiently. | The extended foreign exchange exposure period reflects global trade settlement cycles, especially in commodity transits. Entities must integrate forward cover strategies to manage counterparty and currency risk over longer windows. |
| 13. | Relaxation in compliance requirements for Small Value Exporters/Importers | Draft directions issued. | MSMEs will deal with less paperwork and faster reconciliation, cutting down procedural delays. | Simplification mirrors SME-focused trade facilitation seen in ASEAN economies. MSMEs will experience lower compliance friction but must maintain digital discipline to avoid data mismatches under EDPMS/IDPMS. |
| 14. | Review of External Commercial Borrowing Framework | Draft Regulations issued. | Borrowers can expect a cleaner, lighter ECB process with fewer overlapping conditions. | RBI is aligning ECB norms with global capital access frameworks by easing end-use and lender eligibility criteria. Borrowers will be able to unlock competitive offshore pricing but will have to ensure alignment with arm’s length principle. Please refer Annexure 1: ‘Draft Amendment – FEMA (Borrowing and Lending) Regulations, 2018’. |
| 15. | Regulations for Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business | Draft Regulations issued. | Foreign entities will find it easier to set up operations with reduced approvals and a simplified entry route. | It appears that liaison office is done away with it. By removing rigid liaison-office classifications, RBI is aligning with global ease-of-entry norms for foreign entities. Firms expanding into India must reassess structure choices for tax and regulatory optimisation. Please refer Annexure 2: ‘Draft Amendment – FEMA (Establishment in India of a branch or office) Regulations, 2025’ |
| 16. | Review of instructions on Basic Savings Bank Deposit (BSBD) Account | Draft directions issued. | This aims to turn BSBD accounts into a more usable financial product rather than just a compliance requirement. | RBI’s review mirrors global financial inclusion models where base accounts act as transaction anchors. Banks must innovate low-cost service models to convert BSBD accounts into active usage channels. |
| 17. | Measures for strengthening the Internal Ombudsman mechanism in Regulated Entities (REs) | Draft Master Directions issued. | Customers can expect faster resolution as internal ombudsmen gain more authority and clearer timelines. | Enhanced ombudsman powers align with global consumer protection standards used by Financial Conduct Authority, UK and Monetary Authority of Singapore. REs must improve grievance tracking to avoid escalations and reputational risk. |
| 18. | Review of the Reserve Bank – Integrated Ombudsman Scheme, 2021 | Revised Integrated Ombudsman Scheme issued. | The revised scheme will cut red tape and bring more consistency in how complaints across financial entities are handled. | Streamlining the scheme brings India closer to unified dispute resolution models seen in advanced regulatory regimes. Entities should align internal escalation timelines to avoid penal outcomes. |
| 19. | Lending in Indian Rupees (INR) by Authorised Dealer (AD) banks to Persons Resident Outside India | Amendments to Regulations to be issued. | Allowing INR lending to persons residing to Bhutan, Nepal and Sri Lanka, including a bank in these jurisdictions, will make the rupee more usable in trade and reduce conversion dependencies. | Permitting INR-denominated lending to neighbouring economies supports rupee internationalisation, similar to yuan and dirham regional strategies. Banks must reassess credit appraisal for cross-border sovereign and institutional risk. |
| 20. | Additional Reference Rates to be published by Financial Benchmarks India Limited (FBIL) | FBIL has been advised to publish the new reference rates in consultation with the market. | More currency reference rates will help banks avoid double conversions and price contracts more efficiently. | Publishing more currency pair benchmarks aligns with global FX trading standards where direct cross-rates reduce basis risk. Banks can structure more efficient forex contracts but need updated treasury systems. |
| 21. | Expanding the bouquet of investments for Special Rupee Vostro Accounts (SRVA) holders | Revised regulations to be issued. | Letting SRVA balances be invested in corporate bonds and commercial papers could increase rupee flows and deepen offshore rupee markets. | Allowing SRVA balances into corporate debt mirrors capital convertibility trends seen in other emerging markets. This deepens investment opportunities in India for SRVA holders but may require credit due diligence by foreign participants. |
Annexure – 1
Draft Amendment – FEMA (Borrowing and Lending) Regulations, 2018
The Reserve Bank of India (“RBI”) issued draft amendments proposed to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (“Draft Amendments”) on 3rd October 2025. These draft amendments seek to rationalize the regulatory framework for External Commercial Borrowings (“ECB”) in India, make it easier for Indian entities to access global capital, and ensure that overseas borrowing does not compromise financial system stability.
Regulatory Context
These draft amendments have been issued basis the latest Press Release: Statement on Development and Regulatory Policies, issued by RBI on 1st October 2025. This Press Release introduced several measures, as tabulated above.
As part of the same exercise, RBI reviewed the existing ECB framework with an intent to simplify and modernise the rules.
Key Changes Introduced by the Draft Amendments
- Borrowing Limits Linked to Borrower’s Financial Strength: The current cap of USD 750 million or equivalent per FY is proposed to be replaced. Borrowing limits will now be linked to the borrower’s financial position up to USD 1 billion or 300% of the borrower’s net worth as per last audited balance sheet, whichever is higher. This is designed to better align borrowing capacity with actual balance-sheet strength.
Financial sector-regulated entities are exempt from this limit. - Broader Eligibility for Borrowers and Lenders: The pool of eligible borrowers now includes companies, LLPs, and other entities registered in India. The lender base has also been expanded to include any non-resident, including individuals or IFSC entities regulated by RBI. This has essentially opened new avenues for raising overseas credit and implies that Indian business entities can raise all kinds of loans; however, such loans will be subject to the applicable borrowing limits and end-use clauses.
Entities under a restructuring scheme or corporate insolvency resolution process can raise funds only when their resolution plan specifically permits the same. - Prohibition on end-use of borrowed funds: ECB proceeds cannot be used for chit funds, nidhi companies, agriculture/plantation/real estate/farmhouse construction (unless FDI is permitted), trading in transferrable development rights, and transacting in listed/unlisted securities (other than permitted overseas investments, M&A and investment in primary market instruments issued by non-financial entities). On-lending is also restricted unless the lender is RBI-regulated or an Indian entity lending to its group entity.
Earlier, end-use rules were governed by a negative end-use list issued by the RBI. As per that list, ECBs could not be used for on-lending or investment in capital market or acquiring a company in India by a corporate (investment in SPVs), money market mutual funds, real estate sector, working capital, general corporate purpose, repayment of existing rupee loans and guarantees.
This new regime increases the ECB limits and permits wider usage of ECB proceeds so that they can be invested abroad. - Currency and forms of borrowing: An eligible borrower can now raise ECB in any form of ‘commercial borrowing arrangement’, including FCCBs and FCEBs, in any convertible currency or Indian rupees.
Trade credit, export advance, debt investments and convertible notes issued under NDI Rules are not treated as ECBs. This was not explicitly delineated in the earlier regulations.
While both earlier and draft regulations allow ECBs in foreign currency or Indian rupees; the new regime clarifies that ECB’s currency can be converted between foreign currencies and with INR at the prevailing exchange rate on the agreement date. This was not spelled out in the earlier regulations. - Maturity: Existing maturity periods of 3, 5,7 and 10 years are proposed to be consolidated. Now, a single minimum average maturity period (“MAMP”) for all ECBs is three years (with exceptions for manufacturing companies). Call and put options cannot be exercised before this period.
The MAMP denotes the weighted average time until repayment of all principal amounts under an ECB borrowing (inclusive of all loan tranches). An illustration of how this is calculated:
https://rbidocs.rbi.org.in/rdocs/Content/PDFs/12EC160712_A6.pdf - Market Determined Interest Rates: Interests on ECBs will now be market-determined (subject to the satisfaction of the designated AD Category I Bank). This implies that the interest rate on ECBs is set by the market forces of supply and demand rather than being a fixed rate. Since market-determined rates fluctuate with changes in economy and financial conditions, this provides corporates greater flexibility to access funds at competitive, realistic prices instead of being limited to earlier preset interest caps.
- Arm’s Length Principle: ECB from a related party/group entity must comply with the arm’s length principle. This aligns India squarely with the OECD’s guidance on intra-group financial transactions. The OECD framework goes beyond pricing to assess arm’s length capital structure, i.e., whether unrelated lender would offer the same debt terms to the borrower.
- Simplification of reporting process: Processes for drawdown, refinancing of ECBs, conversion into equity and alteration of key parameters have been simplified, subject to RBI approval. The current monthly reporting under ECB-2 is now linked to actual cashflow and the filing timeline is proposed to be increased to 30 calendar days from such cashflow.
Implementation Timeline
These draft amendments are currently open for public comments until October 24, 2025. The final regulations will become effective on publication in the Official Gazette.
Impact
We believe that these draft amendments reflect RBI’s focus on market liberalisation and increased global funding. If implemented, these amendments will simplify the ECB borrowing process and broaden access to overseas funding.
However, we would like to emphasize that the arm’s length treatment implies that AD Banks will expect more robust documentation, such as transfer-pricing style benchmarking, linking treasury, tax, and regulatory perspectives. Thus, entities should take note of the revised requirements when planning new ECB transactions.
Annexure – 2
Draft Amendment – FEMA (Establishment in India of a branch or office) Regulations, 2025
The Reserve Bank of India (“RBI”) issued the draft amendments proposed to the Foreign Exchange Management (Establishment in India of a branch or office) Regulations, 2016 (“Draft Amendments”). These amendments have comprehensively reviewed the earlier regulations and make it easier for foreign entities to set up operations in India.
Regulatory Context
These amendments have been issued basis Press Release: Statement on Development and Regulatory Policies, issued by RBI on 1st October 2025. This Press Release introduced several measures, as tabulated above.
As part of this, RBI reviewed of the existing regulations with an objective to ease eligibility criteria and enhance ease of doing business for foreign entities in India.
Key Changes Introduced by the Draft Amendments
- Introduction of a new umbrella term ‘Entity Resident Outside India’: The amendments introduce the term ‘entity resident outside India’ (“EROI”) to include all persons (except natural persons) resident outside India. This consolidates earlier categories like branch office, liaison office, project/site office into one.
- Removal of eligibility conditions relating to financial track record: Earlier, foreign entities needed to show a minimum net worth of USD 100,000 or more during immediately preceding 5 FYs for branch office and net worth of USD 50,000 or more during immediately preceding 3 FYs liaison offices. This condition is now proposed to be removed entirely.
- Revised list of permitted activities: EROI engaged in activities prohibited or under approval route as per FDI policy (except with prior approval of the Government), those involved in legal consultancy, or those intending to carry out commercial activities through an ‘office’ other than Project office will not be permitted to establish branch under the proposed regulations.
In contrast, earlier regulations did not permit branch offices for multiple activities such as export/import of goods, rendering professional/consultancy services, research work, promoting technical/financial collaborations, IT services/development of software and foreign airline/shipping company. - No cap on number of establishments: Foreign entities will no longer need to justify the need for multiple offices. No separate RBI approval is required for additional locations. This has removed a major procedural hurdle.
- No limit on tenure of branch/liaison office: Draft amendments have removed the earlier capped tenure 3 years (extendable up to 3 additional years). Upon expiry, the office had to either close or convert into JV/WOS. The new regime proposes no such tenure cap.
- Prior permission of sector regulator: Entities regulated by financial sector regulator must obtain permission from their respective regulator. SEZs establishments will require permission under relevant laws. Non-Profit Organisations, entities owned/controlled by the Government of a foreign country and those operating in Defence, Telecom, Private Security or Broadcasting and those from countries such as Pakistan, Afganistan, Bangladesh, China, Hong Kong or Macau, Sri Lanka intending to set up office in J&K, Ladakh, North-east or Andaman and Nicobar Islands will require prior Government approval.
In earlier regulations, only banking companies, insurance companies, and branches functioning in 100% FDI required approval under these Regulations. - Relaxation for corporate restructuring: If acquisition/ merger/ corporate restructuring of EROI causes change in its ownership and/or control leading it to fall within the list of impermissible activities, it needs to make an application to the designated AD bank.
The earlier regulations required fresh application post closing the existing entity for all cases of restructuring. - Consequences of not submitting AAC: Branch office will need to submit Annual Activity Certificate (“AAC”) along with audited financial statements within 6 months from the date of financial statements to its AD bank/ DGIT(Intl. Tax). If not filed within 30 calendar days from the date of expiry, no transactions would be allowed in the branch office’s bank accounts.
Non-filing of AAC for 3 consecutive years will trigger closure by the designated AD Bank. Earlier regulations did not impose closer consequence for non-compliance.
Implementation Timeline
These draft amendments are currently open for public comments until October 24, 2025. The final regulations will become effective on publication in the Official Gazette.
Impact
We believe that the draft amendments aim to make entry into India more seamless for foreign entities. They remove financial thresholds, reduce approval layers, and allow unlimited presence without expiry. At the same time, RBI has introduced stricter ongoing compliance, especially around AAC submission and accountability of designated AD banks.
Foreign entities and their advisors should carefully assess these revised norms when planning new Indian operations or reviewing existing office structures.
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