Priority Sector Loans for Electric Vehicles are being considered by the Reserve Bank of India - Viral Bake
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Priority Sector Loans for Electric Vehicles are being considered by the Reserve Bank of India

Niti Aayog and the World Bank are working together to build up a $300 million ‘first loss risk sharing instrument’ to increase financing for electric vehicles. The State Bank of India is in charge of this initiative, which will provide a total of around $1.5 billion in funding.

There is a proposal from the Niti Aayog to categorise loans for electric cars under the priority sector lending (PSL) category being considered by the Reserve Bank of India.

Getting loans at cheaper rates will be easier if the idea is approved. However, lenders remain cautious about financing the purchase of electric cars (EVs) because of the lack of experience in a market still in its infancy.

Amitabh Kant, the chief executive of the government’s policy think tank, said that the suggestion had been provided. EVs have the potential to reduce greenhouse gas emissions and improve India’s efforts to combat climate change, according to the CEO of Niti Aayog.

Including electric vehicles in the PSL would not only lower the cost of financing but also increase the number of individuals who could afford to buy one, Kant said in an interview with ET. “In light of the looming climate catastrophe and India’s recent promises at COP26 in Glasgow, we believe there is a justification for this.”

India has set a goal of decreasing carbon emissions by 1 billion tonnes by 2030, reducing the carbon intensity of the economy by less than 45 percent, and cutting emissions to net zero by 2070 at the Glasgow Climate Change Conference last month.

An thorough debate and consultation is needed to achieve the goal of increasing access to and lowering the cost of financing for electric vehicles under the PSL, Kant stated.

The Reserve Bank of India (RBI) did not react to a request for comment from ET.

Boosting the Voltage

40% of lenders’ total lending must be obligated to particular industries under the PSL framework. The agricultural, small business, export finance, educational, social infrastructure and renewable energy industries are some of the most important ones here. Credit-starved industries are prioritised by the banking regulation via the usage of the PSL.

Sulajja Firodia Motwani, CEO of electric two- and three-wheeler manufacturer Kinetic Green Energy & Power Solutions, says that “EV finance continues to be the ‘weak link’ to this development narrative” despite the fact that sales of electric cars are surging.

EV sales quadrupled to 118,000 units in the first half of this fiscal year, despite a scarcity of semiconductors that caused automakers to reduce manufacturing of cars powered by fossil fuels, resulting in a drop in sales.

Financing Issues

Despite a rise in sales, there are still issues. When it comes to electric cars, resale markets for two and three-wheelers are lacking, making it impossible for financial institutions to estimate their residual worth. As a result, the cost of financing electric automobiles is greater than for other types of vehicles.

There has been little interest in financing electric vehicles from banks, despite the enthusiasm around the technology.

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The first e-rickshaws, which were powered by lead acid batteries and were not high-quality items, were financed by several banks who had unpleasant experiences.” “The financial institutions had to endure losses in times of default, since their residual value was low,” Kant stated.

Lenders will have a difficult time analysing the inherent risks associated with the battery until the technical characteristics of the battery (technology, shelf life, cost, mode of operation, etc.) are established and the consequences on residual value of the asset are obvious.

Niti Aayog and the World Bank are working together to build up a $300 million ‘first loss risk sharing instrument’ to increase financing for electric vehicles. The State Bank of India is in charge of this initiative, which will provide a total of around $1.5 billion in funding.

As part of this effort, Axis Bank and GuarantCo, the guarantee arm of the Private Infrastructure Development Group, recently announced a $200 million agreement to help accelerate the e-mobility ecosystem in India.

Varsha

I Varsha Chhirolya having an experience in digital marketing of 5 years, I am an account manager in CREATIVE Ad Agency.

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