PSL can encourage banks to fast-track India’s transition to EVs, says Stranger
Banks and non-banking financial companies (NBFCs) in India have the potential to achieve an Electric Vehicles (EVs) financing market size of Rs.40,000 crores (US$5 billion) by 2025 and Rs.3.7 lakh crores (US$50 billion) by 2030, according to a report by NITI Aayog and the US-based Rock Mountain Institute (RMI) as well as its Indian units, RMI India.
“Buyers are unable to access low interest rates and long loan tenures for EVs as banks are concerned about resale value and product quality. Priority sector lending (PSL) can encourage banks to fast-track India’s transition to EVs and help achieve our 2070 climate goals,” RMI Managing Director Clay Stranger said in the report ‘Banking on Electric Vehicles in India’.
However, retail finance for EVs has been slow to pick up.
“Financial institutions have an important role to play in accelerating the adoption of EVs in India and supporting the decarbonisation of road transport,” underlined NITI Aayog CEO Amitabh Kant.
“RBI’s PSL mandate has a proven track record of improving supply of formal credit towards areas of national priority. It can provide a strong regulatory incentive for banks and NBFCs to scale their financing to EVs,” he pointed out.
Priority sector lending aims to expand financial access and support employment opportunities in India. In order to meet these goals, the report highlights that the Reserve Bank of India may consider various EV segments and use cases based on five parameters: socio-economic potential, livelihood generation potential, scalability, techno-economic viability, and stakeholder acceptability.
“RBI’s PSL (priority sector lending) mandate has a proven track record of improving supply of formal credit towards areas of national priority. It can provide a strong regulatory incentive for banks and NBFCs to scale their financing to EVs,” he pointed out.
The report, released on 21 Jan 2022, indicates that electric two-wheelers, three-wheelers, and commercial four-wheelers are early segments to prioritise under PSL. Moving forward, the engagement of other ministries and industry stakeholders will be important to ensuring the guidelines designed can effectively enhance EV investment in India.
To maximise the impact of the inclusion of EVs, the report also recommends a clear sub-target and penalty mechanism for priority sector lending to renewable energy and EVs.
Furthermore, it suggests recognition of EVs as an infrastructure sub-sector by the Ministry of Finance and the incorporation of EVs as a separate reporting category under the RBI.
Multi-prong solutions such as these are needed not only for EV penetration and businesses, but also for the financial sector and India’s 2070 net-zero target, the report said. fiinews.com
