A shadow banking crisis has darkened the outlook for India’s economy. Recent high profile bank failures indicate problems are far from over. In some ways, this crisis is self inflicted. The legacy of inefficient public lenders continues to misalign incentives throughout the economy. Making matters worse, in 2016 government temporarily abolished large banknotes, leading to many depositing in banks and mutual funds, who in turn loaned to shadow banks who went on to a lot of property projects.
Although the epicenter of this crisis is in the financial sector, especially non bank financial companies (NBFCs),