"We have to work it out. Under the RBI Act, we are not allowed to take any other collateral other than government securities. But we are not looking upon that as an impediment," a senior official source with knowledge of the matter said.
"We will look at ways in which we can directly reach the corporates. We’re saying just give us time to work our way through these regulations and all, but we are indeed looking at directly helping them out," he added.
Both of the sources declined to be named as the matter is still under discussion and the talks are private.
"The government is in discussion with the RBI about this among other things. We will see what is possible," a second official involved in the discussions said.
The Indian authorities handling the matter, the Finance Ministry and Reserve Bank of India, both declined to comment on the story.
India has confirmed more than 350 cases of coronavirus, with seven deaths so far. Experts have said the number of cases reflect rates during the early stages of the outbreak in other countries, which then spiked sharply in subsequent weeks.
Dozens of districts across India have been put under lockdowns with train and bus services suspended in most places, causing panic among investors and sparking sell-offs in bonds, equities and the rupee, which hit fresh lifetime-low early on Monday.
The government last week received a proposal from mutual funds, the largest holders of corporate bonds, seeking the central bank’s intervention. The funds face running into huge losses if current market levels hold up, they wrote.
Three mutual fund sources separately confirmed that they had sought help and said they had been assured of swift intervention by the finance ministry.
Last week, sources told Reuters India is planning a rescue package worth as much as $1.6 billion for the aviation sector, which has been battered after the coronavirus outbreak.
Last week the RBI announced open market operations to buy bonds in an attempt to lower yields in the 2-5 year segment as that part of the yield curve is the reference point for pricing corporate bonds.
The central bank has also launched long-term repo operations to boost rupee liquidity and said it would conduct dollar/rupee sell/buy auctions to provide dollar liquidity to the market.
The RBI has pledged its readiness to take necessary action to ensure financial system stability, but for now it has refrained from cutting interest rates.
The monetary policy committee is due to meet in early April and announce its decision on April 3, when it is widely expected to lower interest rates.
Prime Minister Narendra Modi has also announced setting up of a task force under Finance Minister Nirmala Sitharaman to help businesses already facing strain due to the pandemic.