Here's why RBI is convinced that India's shadow banks need to suffer

Ever since IL&FS defaulted on some of its debt recently, the entire sector has been starved of funds

In India, crises move slowly. We’ve known for years that the state-controlled banks that dominate the financial sector were groaning under the weight of bad loans. For years, though, the government successfully kicked the can down the road. All those assets haven’t been accounted for yet, the banks haven’t been fully recapitalized, the bankruptcy process isn’t working to schedule, yet somehow the banks are still chugging along.

India’s luck may be about to run out. The country’s shadow banking sector -- dominated by what officials call “non-banking financial corporations” or NBFCs -- faces something of a reckoning over the next