Stern Banking Regulations- A Stimulus for Shadow Banking in India

Abstract

Shadow banking can be termed as intermediation of the financial institutions that help in creating the credit across the global financial institutions, but the members involved are not subject to the regulatory oversight. In layman's language it means unregulated activities done by the regulatory institutions. Here the financial institutions involved do not take the deposits in the traditional manner. This paper seeks to examine the current trend in banking and financial sector; namely Shadow banking, the rationale for its emergence and its impact on the Indian Economy. The authors conclude that excessive stringent regulations on the commercial banks will result in the excessive creation of shadow banking systems which comes with its own perils.