•The debt mutual funds?

Yes, the debt mutual funds. There were no buyers in the market. And RBI and SEBI had to take some exceptional steps.

•Even the bank CDs were selling at 18 per cent, 19 per cent?

Yes, that’s right.

•Certificates of Deposits in good banks?

Yes, that created a problem for mutual funds but that was solved by this special line of credit that was extended to them.

•So, tell us about that crisis management because to me, that is one of the sort of glowing chapters of financial sector management in India — how we prevented a systemic crisis. I think you, RBI, Ministry of Finance, many banks, mutual funds, it was quite a gang that got together in a virtuous conspiracy.

I think that was the time when all the elements of the system came together. RBI, Ministry and we sat together and decided that a special line of credit needs to be made available to the mutual funds. The line of credit worth Rs 20,000 crore was made available, though at that time our estimate was that so much may not be required. But liquidity issues are such that it is better to err on the safer side and give this confidence to the market that there is money.

•Because if there is less liquidity, people use more, isn’t it?

Yes, that’s right. People tend to hoard. And even though I do not need liquid money today, I say that I may not get it when I want it. So I want to hoard it today... It’s like water supply. If a city has 24-hour water supply, people will store less water. If you give them only three-hour water supply, they will buy huge storage tanks... And a lot of wastage occurs.

... contd.