The Reserve Bank of India (RBI) has increased the lending limit for the renewable energy sector in its new guidelines for priority sector lending, set to take effect from April 1, 2025.

As per the revised guidelines, the limit of bank loans has been increased to ₹350 million (~$4.08 million) for renewable energy-based generators.

Public utilities based on renewable power sources, like street lighting systems and remote village electrification, will also be eligible for priority sector classification. The limit remains unchanged for individual households at ₹1 million (~$11,653) per borrower.

The central bank last updated its priority sector lending guidelines concerning the renewable energy sector in September 2020. It had then doubled the loan limits for renewable energy projects eligible under priority sector lending. Specifically, bank loans up to ₹300 million (~$3.49 million) for purposes such as solar power generators, biomass power generators, windmills, micro-hydel plants, and non-conventional energy-based public utilities became eligible for priority sector classification.

With the priority sector lending limit raised, there will be more liquidity infusion into the sector, which could also reduce interest rates.

The priority sector lending for agriculture includes loans to farmers for installing standalone solar agriculture pumps and solarizing grid-connected agriculture pumps. Additionally, farmers can avail of loans for installing solar power projects on barren or fallow land or on stilts on their agricultural land.

In 2023, Parliament’s Standing Committee on Energy asked the government to explore the possibility of prescribing Renewable Finance Obligations similar to Renewable Purchase Obligations for banks and financial institutions to make them invest a specific percentage of their overall investments in the Indian renewable energy sector.

Experts at the C&I Clean Energy Meet hosted by Mercom in Chennai recently encouraged businesses to invest in solar energy to reduce operating costs. The discussions underscored how financial institutions increasingly prioritize clean energy investments, making funding more accessible for businesses. Experts noted that companies can avail collateral-free loans of up to ₹1 billion (~$11.46 million) for as little as 10% interest.