Funding crisis to worsen unless India pumps more cash into financial system

Muted government spending and high election-linked expenditure have created a cash deficit in India's banking system in the past few months

India needs to pump more cash into its financial system to prevent a worsening of the funding crisis among shadow banks and the corporate sector, according to one of the nation’s biggest money managers.

Non-banking financial companies had served as a “surrogate womb” for banks, who face regulatory limits on how much they can lend, but that “surrogacy has stopped,’’ Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co., said in an interview at her office in Mumbai. “If the liquidity the system requires is not provided sooner or later, this could morph itself into something