To boost electric vehicle (EV) financing in the country, banks have suggested that the government nudge the Reserve Bank of India to grant priority sector tag to retail EV loans and reduce the risk weightage on such loans, sources said.
In a meeting with the government thinktank Niti Aayog on Friday, banks, including State Bank of India and ICICI Bank, pitched for the inclusion of EV loans in banks’ Priority Sector Lending (PSL) obligations to increase lenders’ risk appetite and credit flow to the emerging sector.
Similarly, a reduction in risk weightage from 100% to a lower threshold would also free up banks’ capital for other productive purposes, sources said.
With growing EV adoption, Niti Aayog had estimated in 2022 that around Rs 45,000-55,000 crore will be required to finance EV purchases by 2026. In order to truly harness this potential, it is imperative to comprehensively address the financing challenges in the ecosystem and unlock the capital required to drive India’s green transformation, it had said.
“Banks are used to traditional financing of (ICE) cars. EV is a different ball game. Once the battery is not there, it has little value,” a banker said, seeking some concessions for increasing lending to the sector. Besides public sector and private banks, the meeting on EV financing was attended by NBFCs and micro financial institutions.
Under the PSL rules, a banking entity needs to lend 40% of the adjusted net bank credit to the so-called priority sector or economically weaker sections such as agriculture, micro-enterprises, and other economically disadvantaged sections.
RBI’s PSL mandate has a proven track record of improving the supply of formal credit towards areas of national priority and can provide a strong regulatory incentive for banks and NBFCs to scale their financing to EVs.
For priority sector tag, RBI should consider various EV segments and use cases based on five parameters: socio-economic potential, livelihood generation potential, scalability, techno-economic viability, and stakeholder acceptability, sources said.
There are concerns that buyers are unable to access low-interest rates and long loan tenures for EVs as banks are concerned about resale value and product quality.
Currently the financing options available in the market are limited along with unfavorable terms. Buyers have limited access to funding with fewer bank and NBFC options lending for EVs vs ICE. For the options available, loan terms are starkly unfavorable. Loan-to-value can be 10%-30% lower depending on vehicle category resulting in higher initial down payment. In addition to this, the EMI burden is higher due to 1-9% higher interest rates and 6-18 months shorter tenor offered vs ICE.