T
he Reserve Bank of India is preparing to open its foreign‑loan framework, potentially permitting External Commercial Borrowings (ECBs) in real‑estate for the first time in three decades. This move, long resisted since the 1997 Asian crisis, seeks to strengthen the rupee by increasing dollar inflows and reflects the sector’s growing maturity.

    Under the draft policy, the RBI would allow ECBs for any real‑estate project that qualifies for Foreign Direct Investment (FDI). Currently, FDI is available for smaller projects, while ECBs are limited to large developments such as industrial parks, integrated townships, and SEZs. The new guidelines state that ECBs cannot be used for “real‑estate business” or farm‑house construction unless those activities are already permitted under FDI rules. “Real‑estate business” generally covers property trading, buying, and leasing. A straightforward reading of the draft suggests that ECBs could be extended to all FDI‑eligible real‑estate ventures, effectively broadening the scope to include residential and commercial projects.

    The RBI’s motivation appears twofold. First, easing ECB access would inject more dollars into the economy, supporting the rupee amid foreign portfolio outflows and export‑pressure tariffs. Second, the real‑estate market has evolved, with reforms such as RERA and REITs adding depth and transparency, making it better equipped to manage risk. A third, less explicit driver is the growing influence of large corporates pursuing major real‑estate projects, creating a lobby for more flexible financing.

    Lender eligibility rules are also set to relax. Presently, only residents of FATF‑ or IOSCO‑compliant countries can qualify as “recognised lenders.” The draft simplifies this to any person resident outside India, potentially broadening the pool of foreign financiers.

    The policy changes could benefit a range of businesses. Banks currently cannot lend to private builders for land acquisition, forcing developers to rely on joint‑development agreements. With ECBs allowed for land purchases, builders could secure financing more directly. Similarly, limited‑liability partnerships could tap ECBs through NRI partners, expanding funding options for smaller entities.

    Industry voices echo these prospects. Pankaj Bhuta, founder of P. R. Bhuta & Co, notes that the relaxation would enable builders to use ECBs for land intended for commercial or residential projects. Isha Sekhri, partner at Isha Sekhri Advisory LLP, highlights that the draft would allow LLPs to access ECBs, opening new avenues for capital.

    In summary, the RBI’s draft policy marks a significant shift: it could permit ECBs in all FDI‑eligible real‑estate projects, relax lender criteria, and provide builders and smaller firms with new financing pathways, all aimed at bolstering the rupee and supporting a maturing real‑estate sector.