RPT-India funds turn to central bank amid cash crunch

(Repeats story from Sunday)

By Saikat Chatterjee and Nishant Kumar

MUMBAI, Oct 12 (Reuters) - India's mutual funds have asked the central bank to lend them short-term cash via a repurchase facility after the global financial crisis virtually paralysed the country's money markets, fund executives said.

The Reserve Bank of India is considering the proposal to let mutual funds deposit some of the short-term bank debt they hold with the central bank in exchange for cash, said four senior executives, who are involved in talks with the central bank and declined to be named.

Central bank repurchase facilities are normally only open to banks and primary dealers. The central bank's spokeswoman said she could not immediately comment.

Mutual funds would normally sell bank debt on the money market to raise cash to meet redemptions, which should have risen in September as customers pulled out money for quarterly tax payments.

But Indian money markets have been hit by the global financial crisis, which has wrecked banks across the United States and Europe and made lenders around the world wary of dealing with each other.

The cost of overnight borrowing on the interbank market jumped to a 19-month high of 23 percent on Friday, more than double the central bank's short-term lending rate of 9 percent.

The central bank has tried to ease the liquidity squeeze and the executives said it would only agree to the mutual funds' request if the money markets failed to thaw.