The move is part of Sebi's effort to check the flow of illicit funds in the issuance of shares to investors on preferential basis.
The Securities and Exchange Board of India (Sebi), in August last year, has notified the new norms that make it mandatory for payments and allotments to be done directly through the beneficiaries' accounts.
As per the regulation, the payment for preferential shares would need to be made only from the own bank accounts of the buyers while it would be necessary to carry out such allotments through demat accounts.
Sebi on its website today clarified that the new regulations are applicable to overseas investors as well.
The requirement of allotment of preferential shares in dematerialised form is applicable to those allottees as well who are overseas investors.
It also said that new regulation would also be applicable to the instances of conversion of loan provided only if the loan has been received from the bank account of the allottee.
There have been concerns that promoters might use the preferential allotment route through front entities and thus adversely impact the interest of public shareholders.
In the last four years, Indian companies have raised over Rs 65,000 crore through preference share issues.