Priority Sector Lending Can Help Unlock EV Financing Market of INR 40,000 Crore by 2025 and Achieve the COP26 Targets
New NITI Aayog-RMI report indicates electric two-wheelers, three-wheelers, and commercial vehicles as early segments to prioritize
New Delhi, IN January 21, 2021
A new report by NITI Aayog, RMI, and RMI India outlines the importance of priority sector recognition for retail lending in the electric mobility ecosystem. Titled Banking on Electric Vehicles in India, the report provides considerations and recommendations to inform the inclusion of EVs in Reserve Bank of India’s (RBI’s) priority sector lending (PSL) guidelines.
Banks and non-banking financial companies (NBFCs) in India have the potential to achieve an EV financing market size of INR 40,000 crores (USD 5 billion) by 2025 and INR 3.7 lakh crores (USD 50 billion) by 2030. 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 decarbonization of road transport,” said Amitabh Kant, CEO, NITI Aayog. “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.”
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 RBI 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.
“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 can encourage banks to fast-track India’s transition to EVs and help achieve our 2070 climate goals,” said Clay Stranger, Managing Director, RMI.
The report indicates that electric two-wheelers, three-wheelers, and commercial four-wheelers are early segments to prioritize 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 maximize 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. Multiprong 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.
For more details, please contact Indrani Dasgupta and Vindhya Tripathi.