NITI Aayog, in its recent report, ‘Banking on Electric Vehicles in India,’ proposed the inclusion of electric vehicles (EVs) in Reserve Bank of India’s (RBI) priority-sector lending (PSL) guidelines to help enhance the sector’s financing market in India.

NITI Aayog has developed the report in collaboration with US-based non-profit organization Rocky Mountain Institute.

The RBI’s PSL guidelines require scheduled banks to allocate 40% of their total credit to sectors of national priority. Including EVs as a priority sector can complement the $300 million facility and encourage the financial sector to mobilize necessary capital.

According to the report, cumulative investment in India’s electric vehicle (EV) transition could be as large as ₹19.7 trillion (~$262.34 billion) between 2020 and 2030. Although public and private sector initiatives are accelerating capital deployment to meet this potential, retail lending to support the financing of EVs has been slow to pick up.

The report highlights that banks and non-banking finance companies (NBFCs) currently hesitate to lend for EVs due to perceived as well as real asset and business model risks. As a result, EV buyers cannot obtain interest rates and tenures comparable to internal combustion engine vehicles if financing is available. This has created the need for a regulatory measure that can mainstream financing of EVs.

Banks and NBFCs in India have the potential to achieve an EV financing market size of ₹400 billion (~$5.32 billion) by 2025 and ₹3.7 trillion (~$49.27 billion) by 2030; the report exclaimed.

“Financial institutions have an important role to play in accelerating the adoption of EVs in India and supporting the decarbonization of road transport,” said Amitabh Kant, CEO, NITI Aayog said.

“RBI’s PSL mandate has a proven track record of improving the supply of formal credit towards areas of national priority. It can provide a strong regulatory incentive for banks and NBFCs to scale their financing to EVs,” Kant added.

Priority-sector lending aims to expand financial access and support employment opportunities in India. To meet these goals, the report highlights that 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.

Electric two and three-wheelers and four-wheelers in commercial use cases represent favorable segments towards the inclusion of EVs under PSL due to greater need for formal credit, higher potential for job creation, scale in urban and rural areas, and relatively high sales forecasts.

Central government policymakers can liaise with the RBI to design and issue the requisite guidelines to operationalize the concept of including EVs in priority sector lending. Financial institutions and the EV ecosystem can contribute by outlining how PSL inclusion can influence their growth and investment plans.

The report further said that multipronged solutions such as these are needed not only for EV penetration and businesses but also for the financial sector and India’s 2070 net-zero target.

Additional policy and market measures to address multiple other challenges include state-level fiscal incentives, open data on vehicle performance, industry-led buyback programs, and loan guarantee facilities.

NITI Aayog and the World Bank set up a $300 million first-loss risk-sharing instrument in India. The instrument is intended to act as hedging and guaranteeing mechanism that banks and NBFCs can access in case of payment delays on EV loans. The program is expected to bring down the financing costs for EVs by 10–12%. Up to $1.5 billion could be mobilized as a result of the instrument.

The Ministry of Power (MoP) recently issued ‘Charging Infrastructure for Electric Vehicles Guidelines’ to accelerate the e-mobility transition in the country. Among many issues, these guidelines have helped fix the timelines for providing grid connectivity for the installation of public charging stations, a significant step towards setting up the charging infrastructure with ease.

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Image credit: By BP63Vincent, CC BY-SA 3.0