New Delhi, May 13 -- India's market regulator is considering easing rules governing intraday borrowing by mutual funds, weeks after asset managers flagged operational hurdles in complying with a tighter framework rolled out earlier this year.

In a consultation paper issued on Wednesday, the Securities and Exchange Board of India (Sebi) proposed allowing mutual funds to use intraday borrowing from banks not just for redemption payouts but also for trade settlements, forex obligations, mark-to-market (MTM) of derivative positions and other cash management needs.

The move comes after the regulator, on 13 March, permitted mutual funds to borrow from banks on an intraday basis to bridge timing mismatches between payouts and guaranteed same-d...