Read Current Affairs
- Why in News?
- The Finance Minister recently stated that Non-Banking Financial Companies (NBFCs) in India can no longer be classified as "shadow banks," highlighting their growing regulatory compliance and systemic importance.
- About Shadow Banking:-
- Shadow banking refers to financial entities and activities that operate outside the scope of traditional banking regulations. These institutions—such as money market funds, hedge funds, private equity firms, and those involved in securitization and asset-backed securities—provide credit and liquidity but lack the same oversight as regular banks. This can lead to concerns about transparency and potential risks to financial stability.
- However, in recent years, NBFCs in India have come under tighter regulatory scrutiny, especially after their role in expanding credit access across sectors. Their integration into the formal financial ecosystem, improved governance, and stricter supervision have distinguished them from typical shadow banking players. As a result, they are now viewed as more structured, transparent, and essential components of India’s financial system.