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A Study of the Non-Banking Finance Companies in India

Author

Listed:
  • Rajeswari Sengupta

    (Indira Gandhi Institute of Development Research)

  • Lei Lei Son

    (Asian Development Bank)

  • Harsh Vardhan

    (SP Jain Institute of Management & Research)

Abstract

In late 2018, the default by a major non-banking financial company (NBFC) in India led to a credit crunch in the Indian economy. The crisis raises questions about the business model of the NBFCs, and the role they play alongside banks in the economy. In this paper we analyse the evolution of the NBFC sector in India over time and its importance in extending credit and discusses the factors that may have contributed to the 2018 crisis. We attempt to understand the advantages and disadvantages of the business model of NBFCs, and the drivers of their rapid rise and subsequent challenges in recent years. We also briefly discuss the potential impact of the Covid-19 pandemic on the NBFC sector. Drawing lessons from the past, NBFCs need to be strengthened to play an important role in India's financial landscape.

Suggested Citation

  • Rajeswari Sengupta & Lei Lei Son & Harsh Vardhan, 2022. "A Study of the Non-Banking Finance Companies in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-009, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2022-009
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2022-009.pdf
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    References listed on IDEAS

    as
    1. Ministry of Finance, Government of India,, 2017. "Economic Survey 2016-17," OUP Catalogue, Oxford University Press, edition 2, number 9780199477661.
    2. Sengupta, Rajeswari & Vardhan, Harsh, 2017. "Non-performing assets in Indian Banks: This time it is different," MPRA Paper 81403, University Library of Munich, Germany, revised 16 Sep 2017.
    3. Ghosh, Swati & Gonzalez del Mazo, Ines & İnci Ötker-Robe, 2012. "Chasing the Shadows: How Significant Is Shadow Banking in Emerging Markets?," World Bank - Economic Premise, The World Bank, issue 88, pages 1-7, September.
    4. Swati Ghosh & Ines Gonzalez del Mazo & ?nci Ötker-Robe, 2012. "Chasing the Shadows : How Significant is Shadow Banking in Emerging Markets?," World Bank Publications - Reports 17088, The World Bank Group.
    5. Acharya, Viral V. & Khandwala, Hemal & Sabri Öncü, T., 2013. "The growth of a shadow banking system in emerging markets: Evidence from India," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 207-230.
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    Cited by:

    1. S. Mahendra Dev & Rajeswari Sengupta, 2023. "The Indian Economy in the Post-pandemic World: Opportunities and Challenges," India Studies in Business and Economics, in: D. K. Srivastava & K. R. Shanmugam (ed.), India’s Contemporary Macroeconomic Themes, chapter 0, pages 9-51, Springer.
    2. Rajeswari Sengupta & Harsh Vardhan, 2023. "India’s Credit Landscape in a Post-pandemic World," India Studies in Business and Economics, in: Indrani Gupta & Mausumi Das (ed.), Contextualizing the COVID Pandemic in India, chapter 0, pages 273-295, Springer.

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    More about this item

    Keywords

    Non-banking financial company; financial intermediation; financial regulation; systemic risk; liquidity crunch;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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