New Delhi: The Reserve Bank of India is considering a proposal from the government’s policy think tank Niti Aayog to categorise loans to purchase electric vehicles under the priority sector lending (PSL) segment.
According to a report in the Economic Times, Niti Aayog chief executive Amitabh Kant has confirmed that the government’s policy think tank has given this proposal.
If the proposal is accepted, it will help the segment get credit at lower interest rates. Currently, these loans are given under the auto retail category, but lenders are wary about financing purchase of electric vehicles (EVs) as they are unsure about the risks in a segment which is still in a nascent stage.
It considered the potential of EVs in reducing emission of greenhouse gases and helping India in its fight against climate change, the publication mentioned citing Niti Aayog CEO.
“The inclusion of EVs under PSL would not only reduce cost of finance but also provide finance to more people, thus increasing penetration of EVs in India,” the financial daily quoted Kant as saying. “Our view is that there is a case for this in the context of the impending climate change crisis and India’s recent commitments at COP26 in Glasgow.”
At the Glasgow Climate Change Conference last month, India has set itself a target of lowering the total projected carbon emissions by one billion tonnes till 2030, reducing the carbon intensity of the economy by less than 45% and cutting emissions to net zero by 2070.
The process for inclusion of EVs under PSL requires extensive deliberations and consultations to have a targeted outcome of increased access and reduced cost of finance to this sector, Kant said.
Manufacturers of electric two and three-wheelers have also made representations to the banking regulator for PSL status, people in the know said.
Under the PSL framework, 40% of lenders’ total credit must be compulsorily loaned to specific sectors. These sectors include agriculture, small businesses, export credit, education, housing, social infrastructure and renewable energy. PSL is used by the banking regulator to direct financing to credit-starved sectors. “Even as sales of electric vehicles are witnessing a surge, with the first half of 2021 already surpassing the 2020 numbers, EV financing continues to be the ‘weak link’ to this growth story,” the financial daily quoted Sulajja Firodia Motwani, chief executive of electric two- and three-wheeler maker Kinetic Green Energy & Power Solutions as saying. “Currently, very few banks and financiers are financing EVs and that too, at very high interest rates.”
In the first half of the current fiscal, EV sales more than tripled to 118,000 units, even as a shortage of semiconductors forced automakers to cut down on production of vehicles running on fossil fuels, hurting their sales.
Industry insiders attribute the increase in EV sales to both demand and supply-side factors. Outreach by manufacturers, improved charging infrastructure, price parity with conventional vehicles due to federal incentives and falling battery prices are driving sales. The hinterlands too are seeing faster adoption amid a rise in the price of diesel and petrol, with consumers increasingly choosing cleaner and greener mobility.
Despite the growth in sales, problems remain. Currently, electric vehicles, including two- and three-wheelers, do not have a robust resale market, which makes it difficult for banks to ascertain their residual value. This has led to higher cost of financing for EVs compared with other vehicles.
As a result, despite the euphoria, banks have been slow in financing the purchase of EVs.
“Some banks have had bitter experiences with financing the earlier version of e-rickshaws, which were powered by lead-acid batteries and were not good-quality products. The financial institutions had to bear losses in cases of default, as their residual value was low,” said Kant. Even as banks are taking a wait-and-watch approach, non-bank lenders are cautiously entering the market.
Source: timesnownews.com
