Shadow banking in India

Abstract

The NBFCs have been the proxies of shadow banking in India. The shadow banking channel is in its evolutionary phase in India. Hence the debate about the shadow banking channels is still on as far as India is concerned. The FSB (Financial Stability Board) in its report points out the various emerging trends and growth of the shadow banking channels in various countries including India. It is imperative to study the trends of shadow banking channels in India to understand the possible financial contagion effect of it on the formal banking systems. This paper studies the deposits accepted by and the loans advanced by the NBFCs from/to the households sector, the credit flow to the commercial sector from the non-banking channels to understand the broad trends. It further studies the difference in the net flow of resources to and from a particular type of NBFCs, to gain insights into the sources of funds with an objective to understand the interconnectedness of NBFCs and the formal banking channels. The paper makes an attempt to study the relationship between CRAR and GNPA to understand the financial performance with a specific reference to NBFC-MFIs (selected on a sample basis).