India’s shadow bank industry is on the brink of a perfect storm situation. Courtesy, the massive fallout of the Infrastructure Leasing & Financial Services (IL&FS), one of India’s biggest shadow lenders. The company started crumbling like a house of cards following a series of defaults, sending shockwaves to the credit market. It shoved off Rs 90,000 crores, triggering a crisis in the Indian economy.
Consequently, the downgrade by the rating agency ICRA of its short-term and long-term borrowing programmes post the crisis, has put pressure on the economy, impacting the debt, stock, and money markets as well. This sudden revelation of a debt-laden IL&FS has been troublesome for the nation's financial market to deal with. The massive liquidity crunch has not only raised questions on the sanity of the NBFC sector but also adversely impacted the economic stability and capital markets, eliciting tension in between the Government and the Reserve Bank of India (RBI).