The Union government is examining a proposal to include retail lending to the electric vehicle (EV) ecosystem as part of the banks’ Priority Sector Lending (PSL) obligation to increase credit flow to the sector, a senior official said.
“The government has received a representation to include EVs in the priority sector. RBI will look at reworking the priority sector lending requirements for banks,” the official said.
The finance ministry is discussing the matter with other ministries, and it will be discussed with the RBI too, he said.
As per a Niti Aayog report in 2022, PSL can help unlock the EV financing market of Rs 40,000 crore by 2025 and achieve COP26 targets.
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 strong regulatory incentive for banks and NBFCs to scale their financing to EVs.
The RBI may consider various EV segments and use cases based on five parameters: socio-economic potential, livelihood generation potential, scalability, techno-economic viability, and stakeholder acceptability.
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. PSL can encourage banks to fast-track India’s transition to EVs and help achieve our 2070 climate goals, the Niti report said.
The report indicated that electric two-wheelers, three-wheelers, and commercial four-wheelers are early segments to prioritise under PSL.
Currently, lending to seven sectors such as agriculture, Micro, Small, and Medium Enterprises (MSME), export credit, education, housing, social infrastructure, and renewable energy are considered under PSL.
