ECB overhaul may unlock global private credit for India’s real estate redevelopment

India’s overhaul of its external commercial borrowing (ECB) framework could open the door to a fresh wave of foreign private credit, particularly for capital-intensive real estate redevelopment projects that have long struggled to secure funding.

The changes remove pricing caps on offshore loans, widen the scope of permissible lending and allow foreign credit funds to lend without setting up an onshore presence. Industry experts say the reforms could significantly expand the pool of global lenders financing Indian developers while also encouraging more lending platforms to be structured through GIFT City.

A key change relates to the treatment of real estate financing. The revised framework clarifies that offshore borrowing can be used for construction and development projects, including the purchase of land linked to such projects.

Ashwin Bishnoi, Partner at law firm Khaitan & Co, said the rules still retain safeguards to prevent speculative land transactions.

“Land purchase has been permitted in certain specific situations, such as construction and development projects,” Bishnoi said. “But developers can sell plots only after trunk infrastructure such as roads, drainage and other essential services have been completed, which mirrors the approach followed under India’s FDI policy.”

The change comes as India’s real estate sector has increasingly turned to private credit funds in recent years as traditional bank lending tightened.

Jyoti Prakash Gadia, Managing Director at Investment Advisory firm - Resurgent India Limited, said the revised framework could unlock meaningful foreign capital flows into redevelopment projects where financing needs are high but domestic funding options remain limited.

“The removal of pricing caps and greater flexibility in loan structuring makes it easier for foreign lenders to participate in projects that previously struggled to secure funding,” Gadia said.

The easing of rules could also expand the universe of lenders able to finance Indian deals. The removal of the all-in-cost ceiling allows credit funds to price developer loans at market rates.

Vishal Lohia, Associate Partner at Dhruva Advisors, noted that borrowing under the framework continues to be subject to safeguards, including limits linked to the borrower’s net worth and a minimum maturity requirement, which could help prevent short-term speculative flows.

The influx of offshore credit could also alter the competitive landscape for domestic lenders. NBFCs and housing finance companies have historically played a central role in funding property developers.

Gadia said the entry of foreign private credit could increase competition for domestic lenders but may also create opportunities for partnerships.

“Domestic lenders with strong local relationships may continue to play an important role, particularly in mid-sized projects, while collaborations with offshore funds could emerge through co-lending or structured financing arrangements,” he said.

Another potential beneficiary of the reforms is GIFT City, India’s international financial services hub, which could emerge as a base for offshore lending structures.

Bishnoi said the tax treatment for lending from GIFT City could reduce borrowing costs for Indian companies.

“Most jurisdictions lending into India attract about 15% withholding tax, whereas lending from GIFT City is typically subject to about 10%. That reduces the cost of borrowing and could encourage more lending structures to be set up there,” he said.

Beyond real estate financing, the ECB overhaul could also expand financing options for acquisitions and corporate transactions.

The revised framework allows offshore borrowing for strategic acquisition financing and permits global credit funds to lend through foreign currency loan structures without establishing an onshore presence.