Tatsat Chronicle Magazine

Priority-Sector Lending Can Help Unlock EV Financing Market: NITI Aayog

Financial institutions can help in accelerating the adoption of EVs in India and decarbonising road transport, said NITI Aayog CEO Amitabh Kant
January 22, 2022
Electric Vehicles in India

NITI Aayog, Rocky Mountain Institute (RMI) and RMI India have released a report, Banking on Electric Vehicles in India, which outlines the importance of priority-sector recognition for retail lending in the electric mobility ecosystem. The report provides considerations and recommendations to inform the inclusion of EVs in the Reserve Bank of India’s (RBI’s) priority-sector lending (PSL) guidelines.

Banks and non-banking financial companies (NBFCs) in India have the capacity to achieve an electric vehicle (EV) financing market size of Rs.40,000 crore (USD 5 billion) by 2025 and Rs 3.7 lakh crore (USD 50 billion) by 2030. Still, retail lending for electric vehicles remains sluggish.

“Financial institutions have an important role to play in accelerating the adoption of EVs in India and supporting the decarbonisation of road transport,” said Amitabh Kant, CEO, NITI Aayog. “RBI’s PSL mandate has a proven track record of improving the 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. To meet these goals, the report highlights that the RBI may consider various EV segments and use cases based on five parameters of 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 points out that electric two-wheelers, three-wheelers and commercial four-wheelers are early segments to prioritise under PSL Going forward, the engagement of other ministries and industry stakeholders will be important to ensuring the guidelines designed can effectively enhance EV investment in India.

The report also recommends a clear sub-target and penalty system for preferred credit for renewable energy and EVs to increase the use of these vehicles. In addition, EVs should be approved by the Ministry of Finance as a subdivision of the infrastructure, the report said. Such multi-pronged solutions are needed not only for EVs and commerce, but also for the financial sector and India’s 2070 climate target.