The government think tank NITI Aayog has urged the government to include electric vehicles (EVs) in the RBI’s priority-sector lending guidelines. It believes this will give a significant push to retail lending for EVs.
The report, wherein NITI Aayog had partnered with Rocky Mountain Institute (RMI), said banks and non-banking financial companies (NBFCs) in India have the potential to achieve an EV financing market size of Rs 40,000 crore by 2025 and Rs 3.7 lakh crore by 2030. However, it noted that the retail finance for EVs has been slow to pick up.
Amitabh Kant, CEO of NITI Aayog, said financial institutions have an important role to play in accelerating the adoption of EVs in India and supporting the decarbonization of road transport. “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.”
The think tank highlighted that priority-sector lending aims to expand financial access and support employment opportunities in India. NITI Aayog has recommended for the RBI to consider various EV segments and use cases based on five parameters – socio-economic potential; livelihood generation potential; scalability; techno-economic viability; and stakeholder acceptability.
Clay Stranger, the managing director for RMI, said buyers are unable to access low-interest rates and long loan tenures for EVs. This is because banks are concerned about the resale value and product quality. Stranger believes priority-sector lending can encourage banks to fast track India’s transition to EVs to help achieve the 2070 climate goals.
As such, NITI Aayog has suggested that electric two-wheelers, three-wheelers and commercial four-wheelers are early segments to prioritize under PSL. It also wants the 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. The report said that 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.
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To maximize the impact of the inclusion of EVs, the report calls for a clear sub-target and penalty mechanism for priority sector lending to renewable energy and EVs.
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