Vehicle Sales Plunge amid India’s Shadow-Bank Debt Crisis & Contagion Fears

Shadow banks provided 40% of new loans for vehicle purchases.

Car sales in India, the fifth-largest auto market in the world, plunged 24% in June, compared to June last year, after they’d already plunged 26% in May, the Society of Indian Automobile Manufacturers reported. Year-over-year declines have been dragging on for nearly a year.

Sales of “goods carriers,” which are seen as an indication of economic momentum, dropped 18% from a year ago. Goods carriers include vehicles such as these:

Scooter sales dropped 15% year-over-year. Sales of motorbikes dropped 10%. Sales of mopeds plunged 22% — “an indication of a gigantic slump in economic growth and decline in demand in rural areas,” The Week explained.

In India’s first fiscal quarter, ended June 30, sales of all two-wheel motorized vehicles combined, by far the largest category of vehicles sold in India, fell 12% to 5 million units. Passenger vehicle sales fell 18% to 712,620 units. Within this group, cars fell 23%, utility vehicles 4.5%, and vans 25.7%, according to the  Society of Indian Automobile Manufacturers (SIAM).

“Probably the most prolonged de-growth phase we have seen.”

“I think…this is the worst phase India’s auto industry has seen,” said Rajan Wadhera, president of SIAM and head of Mahindra & Mahindra’s automotive group, when he unveiled the data. Even the once booming ride-share demand has taken a hit. And weak farm income hurt sales of two-wheelers.

“There were patches of de-growth in 2009, 2011 and 2012, but the government stepped in, tax incentives were given and situation got better. This is probably the most prolonged de-growth phase we have seen,” Wadhera said.

He warned of ripple effects throughout the economy, such as more job losses and closings of dealerships. And he clamored for the government to step in and do something, which is what you’d expect an executive of one of India’s largest vehicle makers to say.

“A lot of dealerships have closed down in the past,” he said, citing data from the Federation of Automobile Dealers Association that indicated that around 300 auto dealerships had closed in recent months. And automakers in India have started to cut production. “So the job losses have already started,” he said.

The industry has been clamoring for the government to reduce the Goods and Services Tax (GST) on vehicles to boost sales. And it has been clamoring for the government to introduce the Indian version of the US cash-for-clunkers program during the Financial Crisis. But those hopes were not fulfilled. Instead, GST cuts and subsidies were granted only to the electric-vehicle industry as all three-wheelers (see image above) have to go fully electric by 2023 to combat India’s horrendous air pollution.

In a sales decline of this magnitude, it’s never just one thing that causes it, and so a slew of factors is getting blamed, including overall low consumer demand, higher insurance costs, and financing issues.

These financing issues are the grand biggie.

India’s shadow banks – lenders that are not deposit-taking banks and are outside of the regulated banking industry – provided about 40% of new vehicle loans. And these shadow banks have plunged into a debt crisis.

This crisis has been in the making for years. As India’s regular banks have been grappling with their $190 billion bad-loan crisis and a slew of hair-raising banking scandals, and have tightened up lending as a result, the shadow banks have jumped into the fray, aggressively lending at the grassroots level.

This worked like a charm until one such shadow bank, Infrastructure Leasing & Financial Services Ltd., one of India’s biggest infrastructure lenders, defaulted on a loan payment last year. To limit contagion across the sector, the government seized control of IL&FS, purged its management, and installed a six-member board.

The IL&FS shock made it more difficult and costly for other shadow banks to access short-term funding. The Reserve Bank of India has cut its policy rate three times so far in 2019, from 6.5% to 5.75%, and indicated that it was willing to help the shadow banks if needed, but might tighten liquidity requirements to curtail their growth.

Then in June, the next shoe dropped when another shadow bank, Dewan Housing Finance Corp, a major mortgage lender, missed debt payments. Three credit-rating agencies downgraded the shadow lender in huge chunks to “D” for default. CARE, one of these ratings agencies, still had rated Dewan’s debt AAA at the beginning of 2019, before launching a massive wave of downgrades in a few months to “D.” This is not conducive to investor confidence.

Other lenders, including Reliance Capital and Piramal Capital & Housing Finance, have also been slammed by credit-rating downgrades.

Access to funding has gotten tougher. According to Bloomberg, the shadow lenders struggle with a “record 1.1 trillion rupees ($15.9 billion) of debt due in the third quarter of 2019.” If they cannot access funding to refinance this maturing debt, there will be more defaults.

Bloomberg notes that shadow lenders accounted for about one-third of all new loans over the past three years, as the regular banks have been trying to dig themselves out of their own crisis:

The worst is probably still to come. Observers warn the credit crunch may hit the property sector next. It is heavily dependent on funds from shadow banks, and concerns are already being reflected in some realtor bonds.

The auto sector is heavily impacted, with about 40% of new auto loans being issued by shadow banks, and with these shadow banks now reeling from a debt crisis, after regular banks had gotten sidetracked by their own bad-loan crisis and banking scandals.

And contagion is rippling through the system as regular banks are heavily exposed to shadow banks: According to Bloomberg, about 7% of all loans on the books of regular banks have been extended to shadow banks.

Market participants have been clamoring for the government, regulators, and the central bank to step in and do more, and to announce specific measures, and to bail out teetering lenders. And the auto industry has chimed in, clamoring for specific measures too, from tax relief to a cash-for-clunkers program, as the debt crisis has hit the real economy.

Until all this happened, India was a fast-growing auto market. That has not been the case in the US, a horribly mature market where auto sales in 2019 are on track to drop to the level they’d first seen in 1999. Read… New-Vehicle Sales Fall to 1999 Levels: How to Grow Revenues After 20 Years of Stagnation (Yup, You Guessed It)

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  35 comments for “Vehicle Sales Plunge amid India’s Shadow-Bank Debt Crisis & Contagion Fears

  1. 2banana says:

    ‘How did you go bankrupt? Two ways. Gradually, then suddenly.’
    – Ernest Hemingway

    The world is drowning in cheap and easy money. Nearly every county now thinks the easy way to prosperity is through more and more debt that will never be repaid.

    And to debase their currency.

    • alex in San Jose AKA Digital Detroit says:

      Those of us who have been through the crash are scared to death of taking on any debt, and don’t.

      I’m still finding I’m too poor, somehow, to get Medi-Cal, and thus have to tell the hospital that I went to, to go fish.

      In a first-world country, this would be no problem. Got pneumonia? Get fixed up. But this is the USA, a 3rd world country with lots of tanks.

      So not only am I not taking on debt, but since “the system” (and I hate being someone who says “the system”) seems to be intent on making things so that I never have more than about $200 in the bank, so I am going to start saving money to escape in a cigar box. I wonder how much distrust in banks, debt, and “the system” has increased in my generation (mid-50s in age) since the crash and the following long, slow, squeeze?

      I am looking at getting home ASAP. I’ll be on the street and I’ll die, but I’ll die where it’s home.

      • nick kelly says:

        Up here in Canada we have been reading about caravans of Americans coming here to buy insulin at one tenth the price.

        Insulin! No huge research by big Pharma needed and no justification for a 1000 percent difference in price. It’s not even by prescription in Canada.

        There is a failure to grasp the Canadian system by some Americans including some politicians. On US TV one politico was explaining how people in the G- 7 flocked to the US for operations.

        ‘No they don’t! ‘ was the exasperated response from host Ari Fleischer in an unusual interruption of a guest. He continued: ‘I’m Canadian and no one from there or the UK or Australia comes here for operations.’

        Of course he shouldn’t have said ‘no one’ because given the huge range of ailments in millions of people there will always be a number travelling to other countries in hope a real or perceived specialty.

        For example, US politician Rand Paul. He recently traveled to the Shouldice facility in Canada for shoulder surgery, not to save money but because of its reputation.

        A number of Americans thought they could explain why a wealthy American would travel to a clinic in Canada’s universal system, which was mostly sub (US) standard. Their answer: it was a PRIVATE clinic and so not a normal part of the system.

        Of course it’s a private clinic! And that is the normal system. The vast majority of Canadian clinics are private. The vast majority of doctors are private, specialists are often in their own individual Personal Service Corporations. Most of the Shouldice patients will be covered by Medicare, although not Paul.

        It’s the insurance system that’s public. This is one reason admin in the US is double Canada’s (about 8 % versus 4%)

        But this stat of the waste with private insurance seriously underestimates its real cost. In his book ‘Better’ US doctor Gawande, M.D., describes the waste of the most valuable time in the system, the doctor’s, that is spent arguing with insurance companies.

        Harvard has done a study of US medical costs and found that everything from a drug to a device to a procedure costs more in the US than anywhere else.

        • nick kelly says:

          Correction: Ari Velshi (the spelling may not be right but its closer)

        • ross says:

          Shouldice hospital in thornhill Ontario does only hernia repairs, not shoulder surgery.

          Famous for non mesh fixes. Sewing only.

          That’s why Rand Paul went there.

        • Dave Chapman says:

          My understanding is that purely elective surgery costs a lot less in the US, because no insurance company is involved. We are talking about cosmetic surgery, LASIC, and similar procedures.
          Amazingly, I have been told that two hours of general anesthesia costs four times as much if the surgeon is removing a gall bladder (covered by insurance), rather than removing some belly fat (not covered).

      • As I understand it you have to sign over your assets, and they will not take your home away from you while you are alive. So you get better go back to work make lots of money and pay that debt off it’s like it never happened. Just hoping for you.

        • alex in San Jose AKA Digital Detroit says:

          I don’t have any assets to speak of, no house, no car, no savings, etc.

      • Don Johnson says:

        I’m confused. I just heard California was so flush with extra cash they just put undocumented immigrants on the free health care slush wagon. I’m sure this has nothing to do with you defaulting on your hospital bills though. It might explain why everyone’s premiums(that actually pay for insurance) are so freaking ridiculously high however.

        You can always move to Texas.

  2. Lemko says:

    Excellent article! Indian Shadow crisis has been going on for a while, they have been in full blown easing since end 18 in equities and repo, only thing left is TARP which they will do eventually, or pull a china and create Dark Pools for defaulted bonds and bad loans, so the Central Bank can TARP without the publicity of bailouts… Haha

    I couldn’t help myself with this,

    EFF 6 bps over the Ceiling of 2.35, 1st percent is 2 bps below ceiling and 25th percent is 4 bps above it… I like your site Wolf, but I am gonna disagree on the rate cut for July and after… They will cut rates at 100 % in 3 weeks, and every single meeting after that until they reach ZIRP, then their standing repo facility will be activated,

    Federal Reserve officials argued the pros and cons of a possible policy tool that allows banks to borrow from the U.S. central bank using Treasuries and other securities as collateral, minutes of the Fed’s June policy meeting released on Wednesday showed… People think moral hazard is bad now ? Soon the fed will have permanent swap lines with big American banks!!!

    • ControlPFail says:

      They can lower rates short end rates all they want, it wont put cash in consumers pockets, it wont stop the increasing runs on liquidity from repo fails/collateral calls. Only the mega banks have access to that, and they are the only ones at the margin who can afford to hold NIRP (gov/corporate) garbage.

  3. Cyclops says:

    Inflation of assets actually mean the dollar is being devalued! If prices of new automobiles keeps going up, it soon will exhaust available buyers!

    • California Bob says:

      “… it soon will exhaust available buyers!”

      I see what you did there ;)

  4. Curious says:

    India recently passed a law mandating that in a few years all two and three-wheel vehicles had to be electric. This might be part of the cause. And considering that India has some of the world’s worst traffic congestion and terrible air pollution, we can only hope they do it without ruining their vehicle industry.

    • char says:

      The core competence of a vehicle maker is often the engine so changing the engine without ruining the old industry is hard (probably impossible) but you get a new industry

    • Briny says:

      What I’m still trying to figure out is why the government in India thinks EV’s are going to achieve anything when power is generated from coal and oil. Given the losses inherent to EV’s from power generation to energy storage in the batteries themselves before being used for actual vehicle motion compared to just direct conversion from gas/diesel to vehicle motion, well the physics just doesn’t work out. Air pollution is certainly going to be exacerbated, not reduced.

      • Tom says:

        True, but they want – as China – to move air pollution out of the big cities

        • Briny says:

          Right. Anyone bother to look at the air currents and inversion patterns in their models? Didn’t think so.

      • Stephen says:

        Here’s the rub: India is already challenged in their power generation as areas sometimes have brown outs and intermittent black outs. So they think charging millions of vehicles is going to make this better?

        • Nicko2 says:

          India is reliant on oil and gas imports. It makes sense to transition to BEV precisely so they can rely on domestic power generation…be it coal, solar, wind, hydro ect…

          This isn’t rocket science. BEV prices are decreasing by around 10-15% per year.

      • Wolf Richter says:


        You just stick to your convictions. Make sure you don’t accidentally change them over time (that would be “conviction creep”). No one forces you to buy an EV. That doesn’t mean that others don’t see the economic benefits of operating an EV.

        The old commercially operated three-wheelers running around in India are among the most polluting vehicles out there. And EV three-wheelers have taken off for economic reasons because operating costs, including maintenance and charging them, are a lot lower, and manufacturing them is a lot simpler too.

    • MC01 says:

      If I may… Three-wheeled vehicles are usually called tuk tuk and are a common sight in Asia and to a lesser extent Africa. I absolutely love them but the experience of riding, let alone driving, one can be terrifying for some people.

      Tuk tuk these days usually come with four stroke engines, either otto or diesel cycle: the former are available in petrol, CNG (Compressed Natural gas) and LPG (Liquified Petroleum Gas) varieties. While the latter types are often marketed as “cleaner” the reason for their popularity is the fact CNG and LPG are considerably cheaper than petrol and diesel fuel in countries like India and Thailand.
      CNG and LPG are not ideal fuels for a small piston engine, and tuk tuk spend a lot of time stuck in traffic anyway, so an electric powerplant makes a lot of sense.

      These e-tuk tuk are not sophisticated vehicles like we Westerners expect an electric to be. They use conventional lead-acid batteries (often ordinary automotive types) and have rather modest performances: 80km range on a good day is considered top of the class. Battery charging times are extremely long.
      There are more sophisticated e-tuk tuk avilable: they are marketed by Dutch firm Tuk Tuk Factory and they are far bigger than your standard Asian vehicle, more powerful, sophisticated and come with Li-Ion batteries as an option.
      But these tuk tuk are novelties, to either cart tourists around guided tours or to be parked in fashionable areas as advertisement aids. And, may I add, they are really pricey for what they are.

      And now let’s talk real world prices.
      Tuk tuk have to be cheap, otherwise they lose their reason of being. In India these things cost about 2 lakh, or €2,600.
      The most widespread e-tuk tuk are those made by Mayuri of India which cost about the same as an ordinary one but are a bit inferior when it comes to range, cargo capacity etc.

      I don’t think this mandate will cause a big disruption to the industry: the tuk tuk is a product of expediency and human ingenuity. The first one were built in India in 1945/6 to recycle the large numbers of Norton 16H and BSA M20 motorcycles declared surplus by the British and Indian Armies after WWII.
      Honda-sama built his first motorcycles using engines salvaged from military radio sets. When supply of these ran out, he designed his own engine.
      Necessity is the mother of invention.

      • Briny says:

        I really do know all that, especially with an engineer’s eye, from up close and personal experience having been all over Asia from Kamchatka, down to Singapore, and thence as far as Oman and pretty much all points between. {Africa from Djibouti to Libya.) Literally my old stomping grounds. I really don’t believe that they are going to accomplish their goal here, looking at this from a systems view.

        We’ll see.

    • Kapil says:

      Dont think so. There arent any viable electric cars on the road. But new safety regulations like ABS being mandatory and new emission norms have made certain engines and car models unviable to sell.

  5. Desai says:

    Greetings from India Wolf and Wolfstreet reader,
    Let me provide some additional information which is relevant here.
    1.) Infrastructure Leasing & Financial Services (IL&FS) has been investigated by Serious Fraud Investigation Office(SFIO) , Investigation agency of Ministry of Corporate Affairs. SFIO in its report has essentially declared IL&FS to be massive criminal enterprise which systematically looted banks’ and shareholders’ money via fraud and collusion by its promoters , auditor(Deloitt) and rating agencies. SFIO has recommended criminal charges against management and auditors and a ban on Deloitt for some years. (Note: PWC is already banned in India for 2 years).
    2.)Management of Dewan Housing Finance corporation Limited. (DHFL) has been accused of “funds diversion” (a.k.a. stealing) to the tune of 300 billion (approx 4.4 billion $) rupee by online investigative media site cobrapost (which appears to be true, atleast to me, as it cites regulatory filings as its evidence and also provides extensive documentation in support of its claim of fund diversion unlike usual “people familiar with matter”). Further , DHFL’s top management are barred by government from going outside India.

  6. Kapil says:

    Thanks you for this rare very well articulated article on India’s banking and shadow banking crisis. Most of India’s media has either kept reporting on this under the lid or said that the problems are contained. They keep saying it for a while now. All this deadly cocktail needs is the dollar to go stronger or oil prices to rise for a meltdown to happen.

  7. David Hall says:

    People who live within half a mile of an Interstate highway are more likely to get cancer. Air pollution is a carcinogen.

    India uses coal generated power for about 72% of its electricity. Switching to electric vehicles may not eliminate air pollution. Alaska had a record hot June. After years of sea ice expansion, Antarctica has lost an area of sea ice four times the size of France in recent years. Global sea level rise is accelerating. Recently it was measured at 1/8 inch per year.

  8. Insta says:


    I love your writing and thought you might want to insert a word between to and themselves in this sentence “have been trying to themselves out of their own crisis”.

    I think you meant extricate, but I can think of lots of other fun words like exangunate.

  9. IdahoPotato says:

    Meanwhile the Indian stock market continues to go to the stratosphere. Look under the hood and nearly half the stocks at are 50-week lows. And small caps and mid caps are way under. It is a matter of time before the large caps follow. Rate cutting will help only to an extent.

  10. Paulo says:

    Electric will be an awesome option for India’s, (and all motorists), provided vehicle weight is kept down and designs are simple.

    MC01 comment reminded me of our first mini bike 1965, lead acid back feeding a generator, belt drive…went like stink and silent.

    4,000 lbs Tesla and ilk, while techy sexy, is not basic transportation. Weight prohibitive. Tuk tuk conversion with lead acid, maybe a desperate effort to extend and pretend. It all may be moot, anyway. This linked article is pretty informative and it doesn’t take much to overlay the information on to the entire argument for different transportation in mega cities. Tuk tuks and cars might be the least of worries.

    Coal fired electric generation to charge batts is not the answer, either.

    I’m 63, and baring some kind of hidden illness, fully expect to see mass migrations and total upheaval in my lifetime; migrations that make the recent European version a small practice test run. Perhaps our economies will be more salvage based than monumental design shifts, at least in some areas of the World.

    Here’s an analogy to electric vehicle design for the masses. In North America huge investments are being made in synthetic food, (veg meat). In most of the World, especially in over populated mega cities, people are doing everything possible to ensure basic sustenance is available. Think bistro vrs food stall, full meal deal vrs a piece of flatbread with rice and beans. Somehow, I don’t see a radical new solution beyond make do and salvage, unless designs and products simplify to the basics.


    • Escher says:

      Thanks Paulo for the optimistic post. What a way to start the day in Asia :-(

  11. Buying on these things isn’t like buying a US PU limo is it? Most of the people I know who buy a USS Ford Explorer pay cash, nobody who has to rationalize a spending budget would do that. So does this debt on a individual level represent a lot of debt or just a little?

  12. gary says:

    “all three-wheelers (see image above) have to go fully electric by 2023”

    If that actually happens (outside of a few TEST markets, i.e. carnival tricks), then I will eat my shorts and buy a Tesla.

    AND I will send a massive donation to Wolfstreet.

    • Wolf Richter says:


      That’s “production and sales,” and not “on the road.” ICE three-wheelers that were built before the deadline can still drive around afterwards, but all three-wheelers sold after the deadline in 2023 have to be electric. For two-wheelers, the deadline is 2025.

Comments are closed.