Shadow banking system fascinated me, especially post-2008 crisis when I realised their importance in the system. NBFCs are not allowed by the central banks, to operate in the same way as the regular banks, e.g., while banks are allowed to accept deposits (like savings accounts), NBFCs are not allowed to do so
Also, unlike banks, NBFCs do not have to follow stringent guidelines that the central bank sets for the banks. There's a reason why NBFCs are called "shadow banks" - because they operate in the shadows of the scheduled banking system. Although there are some, broad-level regulations for the NBFCs mostly they remained out of the purview of central banks. This was also because NBFCs were not looked at with great concern, as their growth was in the "shadows" - at a distance from the regulatory eyes.
The central banks - the ultimate regulators, until recently didn't realise how big the NBFC system had become and how much of an integral part of the system it had become - having the potential to put a significant dent in the formal economy. Incorporating NBFCs into the financial system, therefore, complicates the way the economy works and it's understanding.
However, I didn't understand even the basics of how banking and the NBFC sectors are actually connected. In search of this answer, I decided to read the balance sheet of a bank and an NBFC, hoping to get a glimpse and to get an idea as to how the banking system and the NBFC system are interconnected. For this, therefore, I decided to explore both of their balance sheets - I read the balance sheet of ICICI (a scheduled bank) and Bajaj Finance (an NBFC).
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