‘While seemingly underdogs in the Indian financial markets, NBFCs punched above their weight in destabilising the Indian economy’. In light of the above statement examine the role of NBFCs in the Indian economy. Also, explain the reasons for the recent crisis they are facing and the role of Credit Rating Agencies in the crisis. (15 Marks)

Mentor’s comment:

  • https://www.epw.in/journal/2020/2/h-t-parekh-finance-column/revisiting-nbfc-crisis.html
  • The article examines the crisis NBFCs found themselves in and the genesis of the crisis.
  • In the intro, briefly  explain what are NBFCs.
  • In the main body explain how NBFCs are a significant cog in the wheel of the Indian economy. State some figures to stress the overall importance of NBFCs in the economy and importance of their role for economy. Next, explain the risks involved in the operation and how both risks involved turned into reality for the NBFCs, culminating in their failure. Also explain the role played by the rating agencies in the operation of NBFCs.
  • In conclusion stress the need for due diligence, proper regulation of the sector to safeguard the economy from future shocks of this kind.
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