Electric vehicle finance in India: Lending rate cap, lower interest rate will boost adoption

While at present, only a handful of NBFCs and fintech players are operating in the said space, in order to make EVs a successful enterprise, governments must go beyond providing subsidies and prioritise initiatives to design policies that are venture-friendly.

February 25, 2021 12:22 PM
The minister was speaking at the launch of the “Go Electric” campaign to spread awareness on the benefits of electric vehicles and electric cooking in the country, which is seen to reduce import dependency by replacing oil and gas with domestic fuel based energy.Image used for representation

2021 may seem to be the year of electric cars in India, but it really are the two- and three-wheelers that are powering the electric vehicle revolution in the country. A report by CRISIL claims that by 2024 12-17% of two-wheeler sales and 43-48% of three-wheeler sales will be for electric variants. This excludes e-rickshaws, which by far is the most popular category of electric vehicles in India presently.

India adopted electric 3-wheelers (e-rickshaws) as a shared mobility medium for last-mile connectivity. The market has been booming over the years as they are more convenient and economical to operate on feeder routes, short-distance passenger carriers and other commuting applications. In fact, India became the largest EV market in 2018. Today, nearly 2 million battery-powered three-wheeled rickshaws are plying on Indian roads that are mostly low-speed e-rickshaws and come with a maximum speed of 25 km/h. Not only are they cost-effective for the owner or the driver, e-rickshaws, as they are popularly known are easy to charge and run efficiently for a day besides being totally green, noise-free.

While there has been a high growth of passenger carrier EV 3-wheelers in a relatively short time, their cargo variants and the higher capacity-higher speed L5 category vehicles have also started gaining traction. As such, there has been a rapid adoption of the same in smaller towns for hyperlocal delivery. Therefore, the potential for the market to surpass present growth seems high in 2021.

A lot of companies are showing their commitment to climate conservation by opting for electric vehicles for their hub-and-spoke model delivery. Earlier in 2020, Amazon announced that it will include 10,000 EVs in its fleet of delivery vehicles by 2025. A rival to Amazon, Walmart-owned Flipkart had also stated in June 2019 that it will replace 40 percent of its delivery vans with EVs. Moreover, food aggregators like Zomato and Swiggy are also looking to switch at least 10% of their delivery fleet to electric. While the announcements have been made prior to the lockdown, the industry is optimistic to witness the execution in 2021.

Sameer Aggarwal, Founder & CEO, RevFin

Interestingly, amidst the industry-wide slowdown due to the unprecedented pandemic, electric two-and three-wheelers are reviving at a healthy rate. This is primarily due to their sustainability, affordability and a better value proposition in the shared mobility space. In its bid to accelerate the adoption of e-vehicles, several benefits have been exercised by both the central and the state governments through undertakings such as FAME-II that includes subsidies for infrastructural setup. Delhi government, which plans to have 25% electric vehicles on road by 2024, is offering up to INR 30K subsidy on two-wheelers and has recently launched a ‘Switch Delhi’ campaign to promote electric vehicles and appealed to people to buy them to combat pollution in the city.

An independent study released by the CEEW Centre for Energy Finance predicted that India’s electric vehicle market could be worth $206 billion in ten years if the country expects to achieve its 2030 electric vehicle (EV) ambitions. This potential boom in the market calls for an increasing need for financing as the market is going to be worth $ 60-70 billion in the next 10 years.

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While at present, only a handful of NBFCs and fintech players are operating in the said space, in order to make EVs a successful enterprise, governments must go beyond providing subsidies and prioritise initiatives to design policies that are venture-friendly. It can finance EVs by creating a fund for lending in the EV sector. This can be a relatively easy undertaking as the fund can be distributed to all banks, NBFCs and fintech players present in this space. There should also be a cap on the lending rate to protect borrower interest and ensure funds are available cheaply to meet India’s EV ambition by 2030. Any subsidies offered by various governments must also be distributed in a prudent manner. Rather than passing the benefit to the buyer upfront, these can be credited to loan accounts of buyers to help reduce and clear debt faster. One other option is to hand the subsidy over only once loans are repaid. This will create a god incentive to repay loans and build prudent financial behaviour. In turn, this will lead to reduction in NPAs and encourage more financial institutions to enter this segment.


Sameer Aggarwal, Founder & CEO, RevFin

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