The Ministry of New and Renewable Energy’s (MNRE) recent advisory to banks and financial institutions, calling for prudence in lending to standalone solar module manufacturing, has been welcomed by the renewable energy sector. Stakeholders say capital should flow into parts of the renewable energy ecosystem that have remained underdeveloped.

In an office memorandum, MNRE urged the Department of Financial Services to ensure that financing decisions “adopt a calibrated and well-informed approach” when lending to module manufacturing amid overcapacity.

India’s module manufacturing capacity, now nearing 150 GW, is already 200–250% higher than domestic demand and could cross 200 GW in the coming years.

However, upstream segments such as polysilicon, ingots, wafers, and key ancillaries such as solar glass and aluminium frames, have not kept pace with module manufacturing growth.

Module capacity enlisted under the Approved List of Models and Manufacturers List (ALMM) as of November 2025 was 121.72 GW, while the cell capacity registered under the ALMM List-II stood at 18.48 GW.

Industry insiders say the MNRE advisory is timely.

Dushyant Kumar, PV Quality Manager at AXITEC Energy India, said, “Overcapacity is pressuring prices and lowering utilization, and continued financing of standalone module plants could create avoidable debt risks. The priority now should be integrated manufacturing and upstream segments, such as polysilicon, ingots, wafers, and key ancillaries, such as glass and frames. These are the real gaps holding back India’s solar supply chain.”

Unsustainable Buildup

The trigger for MNRE’s action was a letter from the All India Solar Industries Association (AISIA), which warned that installed and upcoming module capacities already exceed near-term domestic demand and that unchecked lending to more module and cell lines risks unsustainable debt buildup and potential non-performing assets.

“If fresh lending keeps flowing indiscriminately into new module lines, we risk pushing the industry towards distress and bankruptcies,” says Praveen Kumar, Director General at AISIA. “The intent was never to say ‘stop lending’ to the solar sector, but rather to urge lenders to be cautious about further expanding module capacity in an already saturated segment.”

He stressed that the Association also wanted to draw attention to the parts of the value chain where capital is still welcome: “Capacity in upstream manufacturing is still lagging behind potential demand, and where lending opportunities remain strong. MNRE’s subsequent clarification through its press release should put these doubts to rest and give banks and NBFCs the confidence to keep supporting viable, well-structured projects across the solar ecosystem.”

AISIA essentially told the government and the banking system that the sector is at risk of building factories that will be stranded if utilization stays low and prices remain under pressure.

Horizontal Growth

For years, government incentives, from production-linked incentives to customs duties and domestic content rules, spurred a proliferation of module assembly lines and, later, cell manufacturing lines. These were faster, cheaper, and less technologically intensive to set up than upstream facilities, making them the natural entry point for new players.

“India stands at a decisive moment in strengthening its solar manufacturing ecosystem,” said  Chetan Shah, Chairman and Managing Director at Solex Energy. “While our module capacity has grown significantly, the ground realities of domestic cell manufacturing are often misunderstood. A major portion of India’s cell capacity is still based on older P-type technologies that require urgent upgradation, and only a limited share is truly future-ready N-type capacity.”

Shah warned that if lenders apply a blunt caution that doesn’t distinguish between modules and cells, they could inadvertently hurt a critical bridge segment. In his view, solar cells remain the backbone of upstream integration, ALMM compliance, and India’s domestic manufacturing ambitions. Restricting or delaying financing for genuinely competitive, technology-upgrading cell projects, he argued, would risk slowing the transition to advanced technologies such as TOPCon and beyond, precisely where India needs to move next.

The contrast with the upstream side is stark. While module capacity has raced ahead, cell capacity appears on track to meet demand in the near future, India still has only about 2 GW of ingot and wafer capacity and no commercial-scale polysilicon production. Solar glass and aluminum frames, crucial ancillaries for any serious module ecosystem, are also flagged by MNRE as segments where domestic capacity lags demand, with glass around 15 GW and aluminum frames around 17 GW per year.

Some stakeholders introduced a caveat. While agreeing that module overcapacity is real, they cautioned against overreacting. “While banks may exercise caution in the short term, growing demand for solar panels will require a substantial increase in solar capacity,” noted Avinash Hiranandani, Vice Chairman and Managing Director at RenewSys.

He argued that continued banking support for solar manufacturing, including modules, will remain crucial as India’s deployment targets ramp up, especially since “solar cell production has not yet caught up with rising module demand” and a broader ecosystem of ancillaries, such as encapsulants, also needs timely funding to scale.

The sector’s problem is not that too much capital has flowed into solar, but that it has flowed disproportionately into one layer of the stack.

The Road Ahead

The MNRE advisory to banks must also be seen in the context of India’s position within global supply chains. For long, the Indian industry has relied on the Chinese upstream supply. However, the actual build-out has left India with a large fleet of module lines and some cell lines that are still dependent on imported wafers and polysilicon.

Vinay Rustagi, Chief Business Officer at Premier Energies, pointed out that the real gap lies in ingots, wafers, polysilicon, silicon refining, and critical minerals and chemicals. “If we want true self-sufficiency and not just final assembly in India, then capital has to flow into these areas.”

The advisory, he said, was “a nudge for the financial system to align with the country’s long-term manufacturing and energy security goals, rather than adding more capacity where we are already relatively comfortable.”

Another layer to the rationale lies in the need to correct distortions created during the ALMM-heavy years. ALMM pushed developers to buy from domestic, listed manufacturers, which in turn incentivized many firms to quickly add or expand module lines to make it onto the list.

MNRE’s advisory signals that the next phase of growth should address structural gaps in the value chain.

Not everyone, however, is at ease with the implied consolidation. Smaller module manufacturers fear that prioritizing upstream could make it harder for them to raise funds.

Rustagi noted that solar manufacturing is extremely capital-intensive, and globally, the large, vertically integrated players are best positioned to survive and grow over time. “Smaller companies with limited, non-integrated capacities were always going to find it difficult to compete and to raise money at scale, regardless of this lending guidance.”

In that sense, the MNRE rethink on lending to module manufacturing is less a sudden change in direction and more a formal recognition of where market forces were already pushing the industry. If upstream capabilities, especially in ingots and wafers, are strengthened in time ahead of tighter ALMM timelines around 2028, that shift could ultimately support a more resilient, integrated domestic ecosystem that benefits the entire solar value chain.

Industry voices converge on one central point: prudence does not mean paralysis. A calibrated lending approach, as Shah and others argue, would distinguish between speculative, announcement-driven projects and genuinely competitive, technology-upgrading investments, especially in cells and upstream manufacturing. Hiranandani’s emphasis on long-term demand and ancillaries, Rustagi’s call for upstream depth, and AISIA’s focus on system-wide stability all point in the same direction: rebalance capital, don’t retreat from the sector.

“I’m generally not in favor of steering lenders or directing lending toward one segment over another. There’s already too much thumb on the scale in this sector,” commented Raj Prabhu, CEO at Mercom Capital Group.

“Sophisticated lenders are expected to conduct proper due diligence and price the risk of each segment based on fundamentals and demand-supply realities. The market rewards good underwriting with attractive returns and will punish poor decisions with bad loans.

If investment decisions are routinely ‘guided’ from the top or shaped by factions with their own interests, you end up with misallocation and poor outcomes. Government should focus on providing clear policy direction, long-term demand visibility, and targeted incentives to accelerate innovation towards building critical domestic supply chains,” added Prabhu.