In October, the Securities and Exchange Board of India banned foreign funds from issuing the notes through sub-accounts, and in cases where they are based on Indian derivatives instruments.

The move was designed to help stem large inflows, which have pushed the rupee up against the dollar and fuelled liquidity.

"There is no absolute ban on PNs," Finance Minister Palaniappan Chidambaram told Parliament.

Foreign investors can still register and trade Indian shares.

hidambaram said about 1,157 foreign funds are registered with Indian authorities and they have pumped $68 billion into Indian shares and debt so far.

A massive $16 billion of that has arrived this year, prompting the central bank to actively intervene in the currency markets to limit gains in the rupee, and issue bonds to soak up extra cash from the banking system.