The Reserve Bank of India (RBI) has introduced two important regulatory notifications: expanding the coverage of the Integrated Ombudsman Scheme, 2021 (RIOS, 2021) to include more categories of co-operative banks and NBFCs and issuing draft amendments to the Foreign Exchange Management (Borrowing and Lending) Regulations, 2025 (2025 amendment) that provides a comprehensive and detailed framework for External Commercial Borrowing (ECB).
These changes signify enhanced protection and easier access to grievance redressal for a wider base of customers, alongside greater clarity and stricter compliance for entities engaged in external borrowing and lending.
1. The Changes in the Integrated Ombudsman Scheme
The RIOS, 2021 is established for resolving customer grievances related to services provided by entities regulated by the RBI. The Scheme was originally applicable to Regulated Entities which included banking companies, corresponding new banks, Regional Rural Banks, State Bank of India, co-operative banks, Non-Banking Financial Companies (NBFCs), System Participants and a Credit Information Companies.
The October 07, 2025, notification (effective November 01, 2025) expands the scope of the RIOS, 2021. The central change introduced by this notification is the explicit inclusion of additional categories of banks within the scope of the Scheme:
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All Commercial Banks.
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State Co-operative Banks and Central Co-operative Banks.
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Scheduled Primary (Urban) Co-operative Banks.
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Non-Scheduled Primary (Urban) Co-operative Banks with deposits size of ₹50 crore and above as on the date of the audited balance sheet of the previous financial year.
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NBFCs (excluding Housing Finance Companies) which (a) are authorised to accept deposits; or (b) have customer interface, with an assets size of ₹100 crore and above as on the date of the audited balance sheet of the previous financial year.
2. The Draft FEMA Regulations
The FEMA Borrowing and Lending Regulations govern the rules for borrowing and lending money between residents and non-residents in Indian Rupees (INR) and foreign currencies (FCY), as well as External Commercial Borrowings (ECBs). The 2025 amendment, which are yet to come in force, streamlines the framework by providing clear definitions, substituting the entire ECB schedule, and inserting specific, detailed prohibitions on the end-use of borrowed funds.
The 2025 amendment fully substitutes Regulation 2 (Definitions). While many definitions carry forward, several new concepts are explicitly defined or refined:
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Arm's Length Basis: Transaction as between unrelated parties, avoiding conflicts of interest.
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Benchmark Rate: For foreign currency ECB/Trade Credit (TC): 6-month interbank or Alternative Reference Rate (ARR); for rupee ECB/TC: prevailing yield on corresponding government security.
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Cost of Borrowing: Includes interest, fees, charges, guarantee, and export credit agency fees; excludes commitment fees and Indian statutory taxes.
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Designated AD Category I Bank: The bank maintaining the borrower's current account and responsible for ECB reporting and monitoring.
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Financial Sector Regulator: Includes RBI, SEBI, IRDAI, and PFRDA.
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Net Worth: For companies, as per the Companies Act, 2013; for others, capital plus undistributed profits less accumulated losses and deferred/miscellaneous expenditure.
The 2025 amendment inserts a new Regulation 3A, replacing and expanding upon the previous list of "Restricted End Uses". The key changes in these restrictions include:
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Agriculture/Plantation: Prohibited except in FDI-permitted sectors.
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Real Estate/Farmhouses: Prohibited except FDI-permitted activities or industrial land for new/expanded projects.
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Securities Transactions: Allowed only for overseas investment, M&A activities, or primary market instruments issued by non-financial entities for permitted on-lending.
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On-Lending: Allowed only by regulated lending entities or group companies, not for prohibited purposes or ineligible borrowers.
The 2025 amendment substitutes the entire Schedule I, providing a detailed and consolidated framework for ECB, introducing specific rules regarding maturity, cost, and utilization:
A. Eligibility and Participants
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Eligible Borrowers: Any non-individual resident in India may raise ECB. Specific rules apply if the borrower is under restructuring/insolvency or is facing a FEMA investigation
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Recognised Lenders: Must be persons resident outside India or foreign/IFSC branches of entities regulated by the RBI.
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Arm's Length Requirement: ECBs from related parties or group entities must be undertaken on an arm's length basis.
B. Structure and Limits of Borrowing
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Currency: May be raised in FCY or INR. Conversion is permitted at an exchange rate resulting in a lower liability or at the rate on the agreement date.
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Forms: Includes FCCBs and FCEBs; preference shares/debentures not fully and mandatorily convertible are treated as ECB. Excludes short-term trade credit, export advances, and debt/non-debt instrument investments.
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Quantitative Limit: Permitted up to the higher of (a) USD 1 billion outstanding ECB; or (b) 300% of net worth. Not applicable to borrowers regulated by financial sector regulators.
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Maturity: Minimum average maturity period (MAMP) of 3 years; manufacturers may borrow up to USD 50 million with MAMP between 1–3 years. MAMP waived in debt conversion, waiver, or resolution/liquidation cases.
C. Cost, Use, and Management of Proceeds
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Cost of Borrowing: Must align with prevailing market conditions; short-MAMP ECBs must comply with trade credit cost ceilings. ECB proceeds cannot be used to pay the borrowing cost.
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Other Costs: Prepayment or penal charges must reflect market norms.
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Use of Proceeds / Drawdown:
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Drawdown requires Loan Registration Number (LRN).
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INR proceeds must be repatriated and kept in a fixed deposit with the Designated AD for up to 12 months.
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FCY proceeds for overseas expenditure may be invested abroad in short-term, highly rated instruments or deposits with foreign branches of Indian banks.
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D. Security, Refinancing, and Conversion
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Security: Borrowing may be secured by charges over assets or by corporate/personal guarantees. RBI-regulated entities cannot provide guarantees.
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Refinancing: Allowed if MAMP is maintained and new credit spread does not exceed the original.
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Conversion to Non-Debt Instruments: Permitted with lender consent and without additional cost. Prudential restructuring rules apply where the borrower has other credit facilities with RBI-regulated entities.
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Change of Terms: Requires lender consent; FCCB/FCEB conversion needs RBI approval. Extension of tenor triggers RBI's prudential restructuring norms. Change of Designated AD requires NOC.
E. Servicing, Reporting, and Compliance
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Debt Servicing: Principal, interest, and charges can be remitted. Repayments for ECBs sourced from a lender's NRO account must be credited only to the NRO account.
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Reporting: Borrowers must submit 'Form ECB' (for LRN), 'Form ECB 2' (drawdown/servicing), and 'Revised Form ECB' (parameter changes) through the Designated AD bank within thirty calendar days of the relevant event. Late reporting incurs a late submission fee (LSF).
These regulatory updates are highly relevant for both financial institutions and corporate borrowers. The expansion of the Integrated Ombudsman Scheme ensures that a broader range of customers, including those served by smaller co-operative banks and NBFCs, gain access to a unified, transparent grievance redressal mechanism, thereby strengthening consumer protection and accountability.
Simultaneously, the proposed amendments to FEMA's Borrowing and Lending Regulations provide enhanced clarity, uniformity, and prudential safeguards for entities engaged in cross-border financing.