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The State Bank of India (SBI) has stopped issuing fresh car loans for drivers working on Ola's ride hailing platform in Bangalore. This decision comes after the banking institution recorded huge losses with nearly a fifth of its loan book defaulting in the city. The bank had already stopped lending money to Ola drivers in Mumbai a few months back.

Internal audits revealed that majority of the defaulters were drivers working with ride hailing service providers that were suffering from a significant drop in their income, owing to the changing incentive criteria of the companies. SBI's Mumbai arm recorded losses of up to Rs. 60 crore due to the said defaulters.

SBI is not alone in this loan default fiasco. Analysts indicate that various other players like ICICI Bank, Mahindra Finance and Tata Motors Finance have also recorded losses due to rising loan defaults. Some bank officials have suggested that while the current amplitude of defaulters isn’t alarming, the rate of defaults is increasing with every passing month. This can have drastic effects on the banking system's balance if the situation is not taken care of.

A couple of years ago, the ride hailing service industry was riding the wave of investment as huge funding amounts were being dumped into the two major market players - Ola and Uber. In order to establish a firm foothold in the market and to attract new drivers onto their platforms, both these players were offering immensely lucrative incentives, which could easily take a driver's monthly earnings to Rs. 70,000 - Rs. 1 lakh. This prompted various new drivers to apply for car loans and start working with these companies. However, as the time passed, both these platforms started to incur huge monthly losses, and thus decided to cut down driver incentives to decrease the burn rate. This reduced driver income, thus increasing loan default cases.

Industry experts believe that while drivers on both these platforms have seen a drop in income, the case of loan defaults largely include Ola drivers as they accept more payments in cash, in comparison to drivers working with Uber. Ride hailing companies usually deduct applicable loan EMIs from driver payments that have been accepted digitally. However, since Ola drivers usually get paid mainly in cash, the company doesn’t have control on whether or not their drivers pay the pending loan EMIs.

Source: ET

I've spoken to a coupe of Ola/Uber drivers here in Chennai and it turns out that Ola is terrible at paying back drivers from money they have earned through digital transactions.

Which is why, whenever I take an Ola cab or auto, the first question they ask is if its cash or Ola money! Some drivers have even cancelled (ignoring the impact on their ratings) because of Ola money. Apparently Uber's payment schedule is every Friday and its always on time.

This could be one of the main reasons why the default rate among Ola drivers is much higher.

I had a conversation with a Branch Manager of SBI recently. Apparently, of late, a lot of OLA drivers have simply been abandoning their cars, allowing the bank to re-possess, and walking away. SBI (being a PSU bank) has a gazillion internal rules/procedures to follow before they can auction off the cars. And even then, the cars are fetching a pittance, leading to a large proportion of the loan having to be written off.

Banks are under loss, drivers are not making any money, cab companies are burning cash, in this entire show is no one making profits ? The road is jam packed with yellow board rowdy driven cars and there is no respite for other motorists as well. What is the ultimate outcome of this ?

This is unfortunate but inevitable. The model of burning VC money to acquire customers- both passengers and drivers- meant that Uber and Ola ended up posting a rose-tinted vision of the earning potential from this business. 70-100K per month nett is not something even remotely sustainable for the industry and even the Uber "promise" of 60K that they were advertising some time ago seemed an overkill. To those of us who survived the first dotcom boom/bust, the recent start-up mania just seems to be an extension of what happened in 2000-01, seemingly no lessons learned.

Uber needs to go back to its roots and focus on its initial premise of ridesharing and playing an aggregator role rather than needlessly adding more vehicles to the road when already the demand is struggling to keep up with supply. As for Ola, it's a me-too model and the recent cries for protectionist help to the government have exposed them for what they are.

The internet aggregator model is here to stay- it's just a question of plugging away and getting the basics right.

I was browsing through Carwale used cars' section this week and was surprised to see many yellow board Ritz' listed for sale. Probably this is the reason

I honestly think luring drivers with projected incomes of 1L per month was wrong on the company's part. Honestly, even graduates from top B Schools really do not start off with such a pay package (having been a part of the placement committee).

This is not to belittle the profession, but in my opinion, if they get a pay of 40,000 - 50,000 per month (which I trust is what they are getting currently), that is a very good salary. Of course, the initial promise of 1L per month might have lured many drivers into wrong decisions about the choice of car/planning their expenses etc.

Though Uber/Ola have solved a very important problem: Transportation on demand, they have completely distorted the "market view" of the compensation this profession demands. 1L per month is definitely, definitely, not realistic IMO.

Slightly OT, but one would think the investors (largely well educated private equity bankers) would have behaved better the second time around.

Fool me once, shame on you; Fool me twice, shame on me. Sadly those who took such mad decisions still make their million dollar bonuses and the guys at the bottom of the ladder pay the price. :Frustrati

I am old school: your cash flow will tell you the sustainability of your business. Even behemoth Amazon learnt this - it makes more money from renting services (computer server space etc.) than "e-tail".

To add something on similar lines, I had a good conversation with Uber driver on my way back to home from airport last week. To summarize the discussion, the loan processing for his Uber based Hyundai Xcent was very tedious for him since his documents were a bit out of order while his other friends managed to get similar car loans a year ago on a lot less documentation than what he had. Finally he had to take help of a loan agent and he ended up shelling out 70-80 k just to get the loan processed after a lot of niggles. But he said he was happy with the job as he made his own hours and seemed to make good enough money to make his ends meet even after paying off the emi.

Rs. 480 crores revenues growing at 40% per annum. Ola Cabs company has the word 'technologies' in its name (Ani Technologies Pvt Ltd). It is an app based company too. What's not to like?

Rs. 755 crores net loss, but boss, you have to spend money to make money.

The best part is several of these angel funds and investors / their Sr. Executives have boarded these cars and enjoyed the cheap fares, without realizing / while realizing !!! that such bleeding condition of the aggregators is eroding their money which these funds expect to get back with dividends on investment.

Equity is costlier compared to debt and what these funds have done is certainly equity investment, which has been wasted. After multiple years of operations in India Uber / Ola are far away from a stabilized business model. They are neither able to address the regulatory issues for taxi business in India nor they are able to break even !

I am certainly not in for the previous environment when companies like Meru / Mega cabs use to fleece me by charging INR 23 - 28 per km.

Please mend your ways of doing business Ola / Uber.

Based on my conversations with Uber / Ola drivers, I still think that the individual driver can lead a fair life + pay his EMIs. It's the ones running the fleets (and thus adding another cost / profit layer) who might be in trouble. Could also be the drivers who are simply lazy, don't want to work hard or abandoned their cars for other jobs.

On the bright side, customers like us get cheap rides (although, the pricing is unsustainable) :).

Nice post & completely agreed. They set the expectations unrealistically high.

Interesting to know what would be the 'correct' wage (converted into rate/km) for a radio taxi driver.

It is neither Rs.23/km nor Rs. 6/km but possibly around Rs. 19/km with sane working hours/month and ability to pay back the EMI.

The average 'smart' driver salary in BLR is around 16k+/month so add 20k in EMIs and you have a ballpark figure of gross earnings (net off commissions etc) of say Rs. 45k including exigencies/aspirations.

Is this achievable now? Too many people have got into it now souring the original equation.

This thread is a starter to indicate how the outcome will be. The flooding of yellow board vehicles will slowly begin to reduce, and probably stabilise only when the aggregators will ever get a stable pricing model which is based only on a good income from customers, justifiable payment to drivers and profit in between. If they bring in VC funding, high growth aspirations and stuff into this model, it will definitely get imbalanced.

Now banks will have a tough time sorting out the paperwork and then auctioning these cars to recover money. Who will be the takers for these cars? Definitely not another Uber/Ola driver unless their car was permanently gone for some reason. The outstation and company cab drivers now have their own set of spanking new cars. Personal car buyers might not want yellow board cars. And with PSU banks with loads of paperwork to be done, the employees will just state too much of workload as the reason and let these cars rot. :D

A rough calculation for having a salary of 50,000 a month/driver will likely require that the cab plies on an average of 10-12 trips a day. I don't know how far this is possible for every Ola/Uber driver out there. Also considering there might be lean days and days when they are out of work due to other issues it becomes very imperative that they are really careful with their spending. Also factor in the troubles that come with plying a cab on the road and the time for maintenance due to constant running - Repairs from accidents, annual insurance etc (not to forget the fuel cost). It looks like most of them are running on a very thin line.