Regulation 4 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Regulation 4 is the door that regulation 3 leaves open for foreign exchange borrowing. It names who may borrow from outside India in foreign exchange: Authorised Dealers and their branches, eligible resident entities (ECB), importers (trade credit), exporters on deferred terms, Indian financial institutions and two classes of individuals.
This is regulation 4 of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (Notification No. FEMA.3(R)/2018-RB, December 17, 2018), as per the text on the Reserve Bank's site, amended up to February 16, 2026. An ECB or trade credit is raised only under Schedule I or Schedule II. An individual resident in India may borrow from relatives outside India, or a student abroad may raise an education loan, up to USD 250,000 or its equivalent, or any other amount the Reserve Bank decides. The terms are as the Reserve Bank specifies from time to time.
Where regulation 4 sits
The Regulations rest on the Foreign Exchange Management Act, 1999. Their preamble cites "clauses (a), (d) and (e) of Sub-Section (3) of Section 6, sub-section (2) of Section 47". The Act text now prints section 6(3) as omitted, and section 47(3) keeps earlier Reserve Bank regulations in force until they are amended or rescinded. See the Act articles on section 6 and sections 47 and 48.
The general ban in regulation 3 and the end-use list in regulation 3A are explained in the first article of this series. Regulation 4 is the first of the permissions. Companies planning an ECB will also want our ECB reporting service for the filing steps that follow a drawdown.
Part A: borrowing by an Authorised Dealer or its branch outside India
Regulation 4(A) has four sub-regulations.
- An Authorised Dealer (AD) may borrow from its Head Office, branch, correspondent outside India or any other entity, up to the limit and subject to the terms the Reserve Bank specifies, in consultation with the Government of India.
- A branch outside India of an AD that is a bank incorporated or constituted in India may borrow in foreign exchange in the normal course of banking business, subject to Reserve Bank directions and the regulator of the country where it sits.
- An AD may borrow in foreign exchange from a bank or financial institution outside India to grant pre-shipment or post-shipment credit in foreign exchange to its exporter constituent, subject to Reserve Bank guidelines.
- An AD may raise ECB from outside India in accordance with Schedule I.
Part B: borrowing by persons other than Authorised Dealers
| Sub-regulation | Who | What the text allows |
|---|---|---|
| 4(B)(i) | Eligible resident entities | Raise ECB from outside India in accordance with Schedule I |
| 4(B)(ii) | Importers | Raise trade credit from outside India for import of capital or non-capital goods as permissible under the Foreign Trade Policy of the DGFT, in accordance with Schedule II |
| 4(B)(iii) | A person resident in India | Borrow by loan, overdraft or other credit facility from a bank situated outside India, where export of goods or services is proposed on deferred payment terms or in execution of a turnkey project or civil construction contract, if the terms stipulated by the approving authority accord with the export regulations named in the clause |
| 4(B)(iv) | Financial institutions set up under an Act of Parliament | Raise foreign exchange borrowings with the prior approval of the Government of India for onward lending; borrowings in the nature of ECB are subject to Schedule I |
| 4(B)(v) | An individual resident in India | Borrow from relatives outside India, up to USD 250,000 or its equivalent, or any other amount the Reserve Bank decides, on terms the Reserve Bank specifies in consultation with the Government of India |
| 4(B)(vi) | An individual resident in India studying abroad | Raise a loan outside India, up to USD 250,000 or its equivalent, or any other amount the Reserve Bank decides, for education fees abroad and maintenance, on terms the Reserve Bank specifies in consultation with the Government of India |
Reading the individual limits
Both USD 250,000 figures in regulation 4(B)(v) and (vi) are printed in the Regulations "or any other amount as decided by the Reserve Bank from time to time", so the printed number is not the end of the inquiry. The Regulations give no process; the terms are left to the Reserve Bank. If you are an individual wondering whether a loan from an uncle abroad or a lender for a foreign degree fits, read both the clause and any current Reserve Bank direction, and confirm with an Authorised Dealer.
The sub-regulations say "relatives", and regulation 2(1)(ad) says "relative" has the meaning in the Companies Act, 2013. An invented example: Anita Rao, resident in India, borrows from her sister in another country to meet a family expense. Regulation 4(B)(v) is the clause that speaks to a resident individual borrowing from relatives outside India, within the amount in the clause and the terms specified by the Reserve Bank. The loan is not under Schedule I or II, since those are for entities and importers.
ECB and trade credit: the Schedules do the work
Regulation 4 itself only says an ECB "may be raised ... in accordance with" Schedule I and trade credit in accordance with Schedule II. Eligibility, lenders, maturity, cost, security and reporting are in the Schedules. For those, read our articles on Schedule I eligibility, limit and maturity and trade credit for imports under Schedule II, and the overview of ECB under FEMA.
Points to watch
- Deferred-payment exports. Regulation 4(B)(iii) points to the Foreign Exchange Management (Export of goods and services) Regulations, 2015, notified as Notification No. FEMA.23(R)/2015-RB dated January 12, 2016, "as amended from time to time". The Export and Import of Goods and Services Regulations, 2026 say they come into force from October 01, 2026 and supersede the 2015 Regulations. The reference in regulation 4(B)(iii) is printed unchanged on the page consulted.
- Overdraft and other credit. Sub-regulation (iii) covers loan, overdraft or any other credit facility, but only from a bank situated outside India and only for the stated export arrangements.
- Financial institutions. Sub-regulation (iv) needs the prior approval of the Government of India, not only a Schedule compliance.
- Funds and end-use. Money raised under any limb is still subject to the regulation 3A list.
Later amendments and circulars should be checked, since limits stated here are only as printed in the page consulted.
Need help with an ECB or other foreign borrowing?
If you are choosing between an ECB, trade credit and a direct bank loan, a short review of the clause and the lender helps avoid drawing before the formalities are ready. Our ECB reporting work covers the borrower side after the loan agreement is signed.
Key takeaways
- Regulation 4 lists who may borrow in foreign exchange from outside India: ADs and their branches, eligible entities (ECB), importers (trade credit), exporters on deferred terms, Parliament-created financial institutions, and two classes of individuals.
- ECB goes to Schedule I and trade credit to Schedule II.
- Individuals: up to USD 250,000 from relatives outside India, or for education abroad, "or any other amount as decided by the Reserve Bank".
- Financial institutions need prior approval of the Government of India for onward lending.
- Check later amendments before relying on the printed amounts.
Read next
- Regulations 1 to 3A: the ban, the definitions and the end-use list
- Lending in foreign exchange: regulation 5 and Schedule III
- Trade credit for imports: Schedule II
- ECB eligible borrowers and lenders
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.