India’s NBFCs, wrongly called shadow banks, need the government’s backing

India’s non-banking financial companies have been under intense scrutiny lately.

There has been a chain of defaults and downgrades following the crisis at the Mumbai-based Infrastructure Leasing & Financial Services (IL&FS), stoking fears of a contagion in the financial sector.

The situation has been exacerbated by similar tidings in the fortunes of the housing finance company DHFL and Reliance Capital. What followed these episodes is a public outcry in the business press and social media, deriding NBFCs as “shadow banks.” Consequently, retail investors have started shying away from the sector.

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