India seen mulling more cash injection measures

MUMBAI (Reuters) - India may resort to more cuts in banks' cash reserve requirements, pare interest rates and prod banks to step up lending to top firms to tide over a severe cash crunch, the Times of India newspaper reported on Sunday.

It did not mention any timeframe for the proposed measures.

Citing unidentified official sources, the paper said the regulators were also considering banning short-selling in the stock market and diluting mark-to-market norms for banks to overcome provisioning losses to improve the fund shortage.

On Friday, the central bank said it would make a deeper-than-expected 150 basis point cut in cash reserve requirements on Saturday, to release 600 billion rupees ($12.4 billion) into the system. It had previously proposed cutting the cash reserve ratio by 50 basis points.

Overnight Indian interbank interest rates jumped to a 19-month high of 23 percent on Friday, more than double the central bank's own short-term lending rate of 9.0 percent.

The Reserve Bank of India (RBI) has been injecting record sums into the money market, which has frozen as the global financial crisis has spread. On Friday, it injected a single-day record of 920 billion rupees into the banking system.

($1=48.5 rupees)

(Reporting by Saikat Chatterjee; Editing by Anshuman Daga)