Indian Economy News

Priority-Sector Lending Can Help Unlock EV Financing Market of Rs 40,000 Crore by 2025 and Achieve the COP26 Targets

The NITI Aayog, Rocky Mountain Institute (RMI), and RMI India presented a report today titled "Banking for Electric Vehicles in India," which highlights the need of priority-sector identification for retail financing in the electric mobility ecosystem. The paper includes thoughts and recommendations to help the Reserve Bank of India (RBI) decide whether or not to include electric vehicles (EVs) in its priority-sector lending (PSL) criteria.

By 2025, banks and non-banking financial firms (NBFCs) in India might have a market size of Rs 40,000 crore (USD 5 billion) and Rs 3.7 lakh crore (USD 50 billion) for electric vehicle (EV) financing. However, EV retail financing has been difficult to take off.

"Financial institutions have a critical role to play in speeding the adoption of electric vehicles in India and promoting road transport decarbonization," said Amitabh Kant, CEO of NITI Aayog. "The PSL mandate of the Reserve Bank of India has a track record of increasing the provision of formal credit to sectors of national importance. It could create a powerful regulatory incentive for banks and NBFCs to expand their EV funding."

Priority-sector lending in India strives to increase financial access and enhance job prospects. The RBI may assess various EV segments and use cases based on five characteristics, according to the report: socioeconomic potential, livelihood generation potential, scalability, techno-economic feasibility, and stakeholder acceptance.

"Banks are concerned about resale value and product quality, so buyers are unable to obtain low-interest rates and long loan terms for electric vehicles. Priority-sector lending can motivate banks to accelerate India's transition to electric vehicles and help the country meet its 2070 climate targets," according to Clay Stranger, RMI's Managing Director.

Electric two-wheelers, three-wheelers, and commercial four-wheelers are among the first segments to be prioritised under PSL, according to the study. Other ministries and industry stakeholders would need to be involved in the future to ensure that the rules created will effectively boost EV investment in India.

The report also recommends a clear sub-target and penalty mechanism for priority sector lending to renewable energy and EVs to maximise the impact of their inclusion. It also advises that the Ministry of Finance recognise EVs as an infrastructure sub-sector, as well as the inclusion of EVs as a separate reporting category under the RBI. These multifaceted solutions are required not only for EV adoption and enterprises, but also for the financial sector and India's net-zero aim of 2070.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.