More of India’s Shadow Banks Need to Go Bust
Policymakers should remove any illusion that they will bail out institutions engaging in risky lending.
India’s critical auto sector is shrinking.
Photographer: Prashanth Vishwanathan/Bloomberg
The slowdown that began among India’s shadow banks is spreading. Sectors that had come to depend on credit from what in India are called non-banking financial companies (NBFCs) are posting awful numbers. Insurance is slowing and real estate is troubled. The automobile sector -- which contributes half of India’s manufacturing output -- is shrinking as stressed shadow banks prioritize survival above lending growth.
Naturally, Prime Minister Narendra Modi’s government is worried. But it, and the Reserve Bank of India, should avoid any attempt to succor the shadow-banking sector with liquidity. Giving NBFCs the false appearance of health would only increase, not decrease the chances of a systemic crisis.