Optimism Shady for India Shadow Banking Sector

Bloomberg launched a detailed study, tracking the tips and turnings of the health of the Non-Banking Financial Companies (NBFCs) provided an ominous take on the in the industry.India Shadow Banking Sector

Two of the three gauges used to track the developments showed signs of weakening, these were- Banking System Liquidity and Outstanding Debt. The Shared Performance Index remained as it is. However, the spread of lenders on the AAA-rated 5-year bonds rose in September for the first time in four months, bringing a change from the current atmosphere.

Unexpected Blow to NBFCs

The findings seem to be an unexpected blow, following the upwards trajectory of the last few weeks. Both the unprecedented stimuli provided by the Reserve Bank of India (RBI) and the Finance Ministry had been building significant momentum in safeguarding the Shadow Banking system from being over-run due to the economic slowdown.

It is increasingly believed that this upsetting of trajectory is rooted in the Supreme Court’s extension of rules easing the classification of Non-Performing Assets (NPAs). This has led to a serious concern about the lender’s assets.

Future of Shadow Banking

The shadow bank sector could again see furthering of improvements following more support for credit markets in recent weeks. The RBI has stepped up stimulus measures again in October, with a promise to finance 1 trillion rupees ($13.6 billion) of corporate bond purchases by banks. These moves would bring in the necessary room for relaxation for the Industry.

The Shadow Banking industry is of utmost importance to any India-like economic system and the current scenario only increases its significance.

NBFCs are responsible for providing credit and aid to the borrowers who have no other source of credit. In the cash-strapped situation of Indian Economy, this has the potential to realize much of the government’s claims to revive demand and reinvigorate economic activity.

Therefore, the government should pay specific attention to the protection and revival of India’s shadow banking industries and strengthen its current commitment with further targeted reforms if necessary.

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