Synopsis
According to the PSL, 40% of the total credit of the lenders must be obligatorily lent to specific sectors. These sectors include agriculture, small businesses, export credit, education, housing, social infrastructure, and renewable energy. The banking regulator uses the PSL to direct financing to sectors that lack credit.
The Reserve Bank of India is considering a proposal from Niti Aayog to classify loans for the purchase of electric vehicles in the segment of Priority Sector Lending (PSL).
If the proposal is accepted, it will help the segment obtain credit at lower interest rates. These loans are currently made in the auto retailer category, but lenders are reluctant to finance the purchase of electric vehicles (EVs) because they are unsure of the risks in a segment that is still in its infancy.
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| Currently, these loans are given under the auto retail category, but lenders are wary about financing purchase of electric vehicles. |
Niti Aayog chief executive Amitabh Kant confirmed that the government’s policy think tank has given the proposal.
Long deliberations to come
He looked at the potential of electric vehicles to reduce greenhouse gas emissions and help India in its fight against climate change, said CEO Niti Aayog.
“Including EVs as part of PSL would not only lower the cost of financing but would also provide financing to more people, thus increasing the penetration of EVs in India,” Kant told ET. “Our view is that there are reasons for this in the context of the looming climate change crisis and India’s recent commitments at COP26 in Glasgow.”
At the Glasgow climate change conference last month, India set a goal of reducing total projected carbon emissions by 1 billion tonnes by 2030, reducing carbon intensity by saving less than 45%, and reducing emissions to zero. net by 2070.
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| Image Credit: economictimes.indiatimes |
The process of including electric vehicles in the PSL requires extensive deliberation and consultation to have a specific result of greater access and lower cost of financing for this sector, Kant said.
Manufacturers of electric two- and three-wheelers have also made representations to the banking regulator about PSL’s status, people familiar with the matter said.
RBI did not respond to ET’s email seeking comment.
Pushing Electric
Under the PSL, 40% of the total credit of lenders must be lent to specific sectors. These sectors include agriculture, small businesses, export credit, education, housing, social infrastructure, and renewable energy. The banking regulator uses the PSL to direct funding to poor credit sectors.
“Even though electric vehicle sales are on the rise, with the first half of 2021 already surpassing 2020 figures, electric vehicle financing remains the ‘weak link’ in this growth story,” said Sulajja Firodia Motwani, CEO of Electric Two – and manufacturer of Kinetic Green tricycles. Energy and power solutions. “Currently, very few banks and financiers finance electric vehicles, and that too at very high-interest rates.”
In the first half of the current fiscal year, sales of electric vehicles tripled to 118,000 units, even as a semiconductor shortage forced automakers to cut production of fossil-fueled vehicles, which hurt their sales.
Industry experts attribute the increase in sales of electric vehicles to both supply and demand factors. Reach from manufacturers, improved charging infrastructure, price parity with conventional vehicles due to federal incentives, and lower battery prices are driving sales. Inland countries are also seeing faster adoption amid rising diesel and gasoline prices, with consumers increasingly choosing cleaner and greener mobility.
Financing problems
Despite sales growth, problems persist. Currently, electric vehicles, including two- and three-wheelers, lack a strong resale market, making it difficult for banks to determine their residual value. This has led to a higher cost of financing electric vehicles compared to other vehicles.
As a result, despite the euphoria, banks were slow to finance the purchase of electric vehicles.
“Some banks have had bitter experiences with financing the older version of electric rickshaws, which ran on lead-acid batteries and were not a good quality product. Financial institutions had to bear losses in the event of default because their residual value was low, ”said Kant.
Although banks take a wait-and-see approach, non-bank lenders are entering the market cautiously.
“There are still many unknowns as technology, infrastructure and total cost of ownership evolve, and the relative benefits of financing become clearer. We believe it is prudent to take measured steps to learn the dynamics, ”said Rajiv Lochan, Managing Director of Sundaram Finance, one of the leading NBFCs in vehicle finance.
For lenders, until the technical aspects related to the battery (technology, useful life, cost, mode of operation, etc.) and the implications on the residual value of the asset are clear, l Assessing the inherent risks will be difficult and funding may remain limited.
“The government needs to expand support for the Center by lowering interest rates for electric vehicle technology to proliferate,” said Hemal Thakkar, director of evaluation and research at Crisil Research. “Banks are aware of the cost savings, but there is still no guarantee on the resale value of these vehicles. Technology must stabilize and financiers must feel comfortable with its commercial viability. “
To improve electric vehicle financing, Niti Aayog is working with the World Bank to establish a $ 300 million “first loss joint venture”. $ 1.5 billion.
Additionally, private lender Axis Bank and Private Infrastructure Development Group guarantee subsidiary GuarantCo recently announced a partnership to execute a $ 200 million blanket guarantee framework aimed at accelerating the electric mobility ecosystem in India.!!
News Source: economictimes.indiatimes
