RBI Eyes Relaxation on Offshore Borrowing to Strengthen Dollar Inflows in Real Estate

The Reserve Bank of India (RBI) is reportedly considering a major shift in policy — allowing real-estate firms to raise foreign loans (External Commercial Borrowings, or ECBs) for the first time in about three decades. This move marks a departure from long-standing resistance rooted in past financial crises.

Why This Shift?

• Support for the rupee: With foreign portfolio investors pulling out capital and export headwinds mounting, the RBI is keen to bolster foreign exchange reserves. Easing restrictions on ECBs could usher in fresh dollar inflows faster than many other policy levers.

  
  

• Sector maturity argument: Advocates point out that real estate markets today are more regulated and resilient — with tools like RERA (Real Estate Regulatory Authority) and the rise of REITs (Real Estate Investment Trusts) lending structural strength.

  
  

• Industry pressure: Large developers and institutional investors have increasingly lobbied for greater access to global capital. Allowing ECBs in real estate aligns with their expansion and capital-raising ambitions.

  
  

What Would Change?

Under the draft policy, any real estate project eligible for Foreign Direct Investment (FDI) could also tap ECBs. Currently, only large projects such as SEZs, integrated townships, and industrial parks are permitted to use ECBs.

However, pure “real estate business” (like trading land or leasing without development) would still be excluded, except where FDI norms already permit such activities.

Also under consideration: relaxing rules on who can lend. Presently, lenders must be from countries compliant with FATF (global anti-money laundering standards) or IOSCO (securities oversight). The draft suggests replacing that with a simpler “recognized lender = a person resident outside India” clause.

Implications & Opportunities

• Easier land acquisition financing: Developers may finally be able to use foreign borrowing to acquire land—currently disallowed—even when the land is for residential or commercial development.

  
  

• LLP borrowing relaxed: Draft rules propose allowing a Limited Liability Partnership (LLP) to borrow from its NRI partner under ECBs — a move that could ease funding for many projects.

• Risk management concerns: Reintroducing foreign debt in real estate rekindles fears of currency risk and project stress, especially if global rates rise or capital flows reverse.

  
  

• Selective uptake expected: Large developers with strong credit profiles and global networks would benefit most, while smaller players may find offshore borrowing less accessible.