The Reserve Bank of India's (RBI) announcement on Tuesday comes days after it withdrew a restriction that limited foreign investors to only investing in government and corporate bonds with tenures of three years or more.

It was unclear when the rule change on investment in T bills would come into effect.

However, if a non-resident entity sets up five funds, for example, the total investment by the five FPIs would be considered when checking to see if they are within limits that will be set, the RBI added.

The changes to investment by FPIs come amid weak investor interest at two recent government bond auctions, following hawkish central bank statements, that led to a spike in sovereign debt yields.

Foreign investors had previously piled into Indian debt since last year, attracted by a strong rupee and high domestic yields.