Supporting industry body PHDCCI ‘s suggestion for a Green Bank for a renewable projects, senior executives at renewable energy companies have sought a dedicated bank on the lines of NaBFID to lend for green projects , in the upcoming budget .
Industry body PHDCCI recently suggested that the government set up a dedicated Green Bank or climate finance facility to catalyse private capital into green technologies such as renewable energy, energy efficiency, and electric vehicles as part of its pre-budget recommendations.
The industry body suggested that the proposed Green Bank should be allowed to raise funds through green bonds or pooled financing instruments to expand the availability of long-term climate finance.
“The bank should be allowed to go for long term dollar borrowing and do long term funding for projects.,” said a senior executive at Tata Group. The executive said the loans should have long term tenure, fixed rate and secured funding as transmission bids have tenure of 25 years and pumped storage projects have tenure of 45 years.
“Big players do not have an issue but smaller player find it difficult to raise long term funds,” he said , adding lending rates should be sub 8% , lest it make projects expensive
Others agree with the Tata Executive. ” If Government can set up something like NaBFID , nothing like it ,” said Abhishek Pareek, head of group finance at Waree Energies, a solar products company.
Beyond Infrastructure
NaBFID or National Bank for Financing Infrastructure and Development was set up in 2021 under an act of Parliament to fund long term infrastructure projects. Besides getting initial capitalisation from government , the bank also got a tax holiday for a period of 10 years to support its profitability. The government also notified NaBFID as a public financial institution (PFI) to increase its resource profile by way of market borrowings as well as bank borrowings.
Shilpa Kumar, Managing Director and Head of India, British International Investment said the he design of a dedicaed institutions is crucial. “They should not replicate or crowd out existing pools of capital. Instead, they should focus sharply on addressing funding gaps and mitigating the perceived risks that continue to hold back incumbent lenders, Kumar said . In particular, there is an opportunity to support newer ideas in the climate space, whether through building robust supply chains for green solutions or enabling NBFCs to expand retail lending across areas such as electric vehicles and rooftop solar, she added.
De-risking the Future
This (the opportunity) can be achieved through a range of blended finance structures, including subordinated debt and partial credit guarantees, which can encourage lenders to expand their green balance sheets while balancing risk and returns, Kumar said.. “Most importantly, such institutions could build a repository of risk learnings and disseminate these insights more widely, helping to bridge perceived risk gaps and expand access to capital markets.” she said.
A chief financial officer at a global renewable energy company said green bank should lend loans at concessional rates. ” They should enjoy tax advantage like NaBFID so that they can lend at lower rates ,” he said adding that they should be allowed to raise money through bonds.
He said since NaBFID has overall focus on infrastructure, renewables is part of its focus area and hence green energy needed a dedicated financial institution.
DV Manjunatha, chairman and managing Director at Emmvee Photovoltaic Power said since commercial banks have many lending objectives, a focused green bank would help the sector . “Considering that our power demand is growing fast, huge growth in data centres and Net Zero goals we need a separate green bank,” he said.
However Sandeep Agarwal , managing director at Greenzo Energy said instead of a separate bank, existing commercial banks should be allowed to raise green bonds similar to what banks do in UK.
“All banks should keep certain percentage of their loans for renewable projects,” he said. In UK, banks sell green bonds to public at 5 to 5.5% and fund renewable projects at 7.5%, he said, adding same model can be followed in the country.
“A green bank can’t not set up multiple branches across the country, he said. All domestic and MNC banks should give 10% or their loans for RE projects , he said.