NAVIGATING INDIA’S SHADOW BANKING LANDSCAPE: CRITICALLY ANALYZING RBI’S REGULATORY FRAMEWORK AND FUTURE CHALLENGES

AUTHOR – PARTH VERMA, STUDENT AT CHRIST (DEEMED TO BE UNIVERSITY), BENGALURU

BEST CITATION – PARTH VERMA, NAVIGATING INDIA’S SHADOW BANKING LANDSCAPE: CRITICALLY ANALYZING RBI’S REGULATORY FRAMEWORK AND FUTURE CHALLENGES, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 4 (3) OF 2024, PG. 285-292, APIS – 3920 – 0001 & ISSN – 2583-2344.

i) Abstract

This paper discusses the role of the Reserve Bank of India (RBI) in regulating the shadow banking sector, otherwise known as the Non-Banking Finance Companies (NBFCs) within Indian territory. Shadow banking, which is synonymous with non-bank financial intermediation, has achieved massive growth in the Indian economy over the past several decades. Although it plays an important role in extending credit facilities throughout the country, it also poses certain risks to financial stability. This paper tries to explain the basic concept and historical background of non-banking finance companies in India. In addition, the paper is particularly focused on evaluating the legal provisions and the regulatory framework adopted by the Reserve Bank of India for regulating entities operating within this sector. Finally, the research deals with the current issues and challenges existing in this sector and ways to effectively address these. As a result, the primary focus of the study shall be to propose solutions for dealing with the changing nature of activities of NBFCs and the dilemma of the RBI in walking the twin tightropes of promoting financial innovation on one hand and maintaining systemic stability on the other. It identifies the shortfalls in the present legal framework and suggests recommendations that make the shadow banking regulation more purposeful and effective for India. The study concludes that though RBI has over the years made efforts to regulate the Shadow Banking Sector to a large extent, there is still a need for stringent and certainly more comprehensive regulations towards addressing the emerging risks and to achieve balance between the financial inclusions and economic growth through this sector with overall economic/financial stability.