It also lowered the ceiling on interest rates to be paid on such borrowings, making it difficult for small- and medium-sized companies to raise ECBs. In August, it placed more restrictions and disallowed rupee expenditure above $20 million. Last month, market regulator Sebi's move to restrict investments through participatory notes was also aimed at moderating inflows.

Huge inflows of external funds are putting pressure on the economy with the rupee breaching the Rs 40-mark against the dollar. Excess dollar inflows are mopped up by the RBI in order to prevent the rupee from appreciating.

As RBI buys dollars, it injects rupees into the banking system. This surplus cash in the system is again mopped up by a sale of special securities -- a transaction called sterilisation. But this puts upward pressure on interest rates.

With exporters already facing the brunt of a rising rupee, the government cannot allow the rupee to harden against the dollar beyond a point. But sterilisation has a fiscal cost which the government has to bear in terms of the interest paid on securities issued by the central bank.

The ceiling for the market stabilisation scheme has already been raised, and now, the central bank wants more checks to in place to modulate inflows. The fund flow into the country has grown on the back of interest rate arbitrage, surging equity market and strong economic fundamentals.