The Reserve Bank of India (RBI) and the finance ministry are in favor of a proposal from the industry regulator to open a cash window that fund houses can tap via their banks, the people said, asking not to be identified as the discussions are private. Other measures to ease a growing cash crunch are being discussed and a final decision is expected soon, one of the people said.

Policy makers are concerned that stress among mutual funds will translate into higher borrowing costs for companies that depend on the sector for short-term funding. Already, yields on commercial paper issued by corporates surged in recent weeks. Companies and funds are hoarding cash fearing a protracted demand slowdown as the coronavirus spreads.

The RBI, finance ministry and the Securities and Exchange Board of India, the nation’s markets regulator, did not immediately respond to emails and phone calls seeking comment.

The new facility being contemplated would replicate one from the global financial crisis, when the RBI held special money auctions and accepted as collateral short-term debt securities issued by lenders. The banks were then allowed to use the cash raised to extend loans to mutual funds.

The surge in money market yields “requires an urgent intervention from the central bank," said Suyash Choudhary, head of fixed income at IDFC Asset Management Co. The RBI “needs to pivot towards addressing a substantial financial market shock rather than only reacting to an economic slowdown."

India’s 6 trillion ($79 billion) short-term debt market, which includes commercial papers used by companies to raise funds and certificate of deposits issued by banks and financial institutions accounts for about a fifth of the nation’s corporate bond market.

While the reliance to raise short-term money is significant, companies are trying to conserve cash evident from an outflow of 43,800 crore from so-called liquid funds. Mutual funds saw a net outflow of nearly 28000 crore from debt funds in February compared to an inflow of 1.09 trillion in January, according to an industry body data.

Authorities are ready to intervene in the short-term bond market, a person familiar with the matter said recently. Indian companies have a record 5.9 trillion $77.5 billion) of local notes maturing this year.