Government-owned lender Small Industries Development Bank of India (SIDBI) has launched a pilot program — Mission 50K-EV4ECO — to bring down the cost of capital for purchasing electric vehicles (EVs), especially 2- and 3-wheelers, through direct and indirect lending.

This program is the precursor to EVOLVE by SIDBI-World Bank.

SIDBI said a detailed discussion with stakeholders revealed that access to adequate finance at competitive rates has challenged micro, small, and medium enterprises (MSMEs) in adopting EVs.

On the supply side, the bankers perceive lending for EV purchases to be high risk. Similarly, dedicated non-banking financial companies have struggled with the high interest rate on funds, leading to unaffordable EV costs for interested businesses.

SIDBI further said it intends to resolve some of these challenges, especially for the 3-wheeler EV segment, by providing better financing terms and understanding other solution bouquets needed to address prevailing issues.

The pilot program has two components- direct lending and indirect lending. Under direct lending, SIDBI will give loans to eligible MSMEs (including aggregators, fleet operators, and EV leasing companies) to purchase EVs and develop charging infrastructure, including battery swapping.

Indirect lending is targeted at non-banking financial companies (NBFCs), including small unrated, focused, and emerging NBFCs actively engaged in EV financing), which can reach out to the last mile by inducing access to funds and reducing the landed cost.

 Sivasubramanian Ramann, CMD, SIDBI, said, “This pilot will be followed by scaling up support to the ecosystem from multilateral support. MSMEs, aggregators, and other crucial EV value chain actors have faced challenges in convincing financial institutions to lend them. Similarly, the channelizing agencies are also facing speed breakers.”

He added that the NBFCs need help in catering to all MSMEs that require financing for an electric vehicle for their day-to-day operations or commercial use.

“We at SIDBI realize the need to give it a developmental push, thus giving a fillip to the national agenda of carbon neutral nation,” Ramann said.

Sudhendu Sinha, Adviser (Infra & e-mobility), NITI Aayog, said, “Electric 2-3-wheelers offer the greatest potential for EV adoption in India, accounting for 79% of passenger road activity, and are already cost-competitive relative to conventional vehicles. We look at SIDBI to prioritize the 3-wheeler segment.”

Electric vehicle sales in India reached 349,676 units in the first quarter of 2023, a year-over-year increase of 81% compared to 192,565 units sold in the same period last year. It was largely driven by 2-and 3-wheeler sales.

In its report last year, NITI Aayog proposed the inclusion of EVs in the Reserve Bank of India’s priority-sector lending guidelines to help bring more liquidity at a lower cost to the sector.