Previously, only profitable companies were allowed to sell shares via a follow-on offering.

The Securities and Exchange Board of India (SEBI) also relaxed rules regarding the debt limit allocation mechanism for foreign institutional investors, allowing them to re-invest up to 50 percent of their previous year's debt holdings.

The measure will come into effect from 2014, the regulator said in a statement.

The regulator also reduced the timeframe within which foreign investors must use their debt auction limits, to 30 days from 45 days for government bonds, and to 60 days from 90 days for corporate bonds.

The move is intended to free up debt auction limits faster so that they can be sold to those foreign investors who are more willing to use them.

The regulator also proposed to frame uniform guidelines for all foreign portfolio investors, a step which is expected to help better regulate their investments.

It also allowed debt oriented mutual funds to invest up to 10 percent of their net assets in housing finance companies.

However, such investments by mutual funds cannot exceed 30 percent of their net assets, it said.