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Second wave of crisis? How Essel can worsen shadow banks' cash crunch woes

Defaults at IL&FS have roiled the credit market and made it harder for other non-bank lenders to access funds

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Ameya Karve | Bloomberg
India’s shadow lenders are facing a fresh threat, just as they were starting to recover from the fallout of landmark defaults last year by one of their own.

The lenders could come up against a new cash shortage, if concerns about debt at conglomerate Essel Group ricochet through India’s money markets, according to Citibank and Credit Suisse. There’s reason to think that may happen, the argument goes, after Essel’s billionaire founder Subhash Chandra said on Friday that it has increased debt levels and a diminished ability to service borrowings.

Here’s how things could get ugly: Mutual funds hold a lot of debt