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					</table>In the fourth article of our series covering all you need to know about rooftop solar systems, we focus on ways to finance your residential rooftop system. This write-up will help you understand the different ways to finance your rooftop installations through banks or financial institutions, the processes and the documentation involved, rates of interest applicable, and the collateral.
Check out the <a href="https://mercomindia.com/want-install-rooftop-solar-system-home/" target="_blank" rel="noopener noreferrer">first</a> and <a href="https://mercomindia.com/money-rooftop-solar-systems-save/" target="_blank" rel="noopener noreferrer">second</a> of the series.
The System Cost
The <a href="https://mercomindia.com/cost-install-1-kw-solar-residential-rooftop/" target="_blank" rel="noopener noreferrer">third</a> article in the series had shed light on the cost of the rooftop solar system, which depends on the price of the modules and inverters used.
The cost of a 1 kW rooftop solar system ranges from ₹45,000 (~$612) to ₹85,000 (~$1,156), excluding the batteries&#8217; cost. A 5 kW system could cost in the range of ₹225,000 (~$3,061) to ₹425,000 (~$5,782), excluding GST.
Financing Through Banks and NBFCs
The first line of financing is banks, which offer loans under top-up plans such as home loans and renovation loans. For this scenario, we are considering that the capital is invested by the consumers who own the rooftop solar systems on their homes.
Some banks specifically finance rooftop installations, albeit rates of interest vary significantly from one bank to another, starting anywhere from 10% to 18%, depending on the borrower&#8217;s source of income and risk profile. The maximum tenure for the loan again varies from bank to bank ranging from 1-5 years up to 20 years.
Even the securitization of the loan varies from one lender to another. Canara Bank will mortgage the residential property and hypothecate the solar equipment. Meanwhile, YES Bank, which has a tie-up with Luminous, can issue an unsecured loan.
<a href="https://mercomindia.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver.jpg"><img decoding="async" class="aligncenter size-full wp-image-23015" src="https://mercomindia.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver.jpg" alt="rooftop solar loans by bank_ver" width="100%" height="100%" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver.jpg 1685w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-300x244.jpg 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-768x624.jpg 768w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-1536x1249.jpg 1536w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-650x528.jpg 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-624x507.jpg 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-600x488.jpg 600w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/rooftop-solar-loans-by-bank_ver-1024x833.jpg 1024w" sizes="(max-width: 1685px) 100vw, 1685px" /></a>
Mercom spoke to Priyanka Mohan, Director of Kor Energy, who said, &#8220;There are several banks and non-banking financial institutions (NBFCs) where we line up our clients. However, we prefer that our customer&#8217;s existing banks take up the funding since they already have a rapport. We then send the detailed project report to the bank and ask our client to source the loan from them. If there are issues with the banks, we can always approach NBFCs and other institutions that offer solar funding.&#8221;
NBFCs finance solar installations on residential properties. However, unlike banks, the interest rates are quite steep, ranging from 13% to 24%, though most don&#8217;t demand collateral.
<a href="https://mercomindia.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver.jpg"><img decoding="async" class="aligncenter size-full wp-image-23014" src="https://mercomindia.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver.jpg" alt="Rooftop by NBFC banking chart_ver" width="100%" height="100%" srcset="https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver.jpg 1849w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-300x271.jpg 300w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-768x693.jpg 768w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-1536x1386.jpg 1536w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-650x586.jpg 650w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-624x563.jpg 624w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-600x541.jpg 600w, https://mercomindia.s3.ap-south-1.amazonaws.com/wp-content/uploads/2020/12/Rooftop-by-NBFC-banking-chart_ver-1024x924.jpg 1024w" sizes="(max-width: 1849px) 100vw, 1849px" /></a>
Retailer Option
Meanwhile, companies like Luminous, which has tie-ups with YES Bank and IDBI, also finance their end customers through their dealer networks.
The national sales head, solar, and assistant vice president at Luminous India, Sanjay KVS, spoke to Mercom about this, &#8220;Around 98% of our business comes from our distribution network, and we empower our retailer so that they can get us good business. Typically, our dealers are battery and inverter shops. Luminous makes a deal with the larger financial institutions and shares the offers with them. The commercial dues and charges are covered by Luminous so that the customer and the retailer do not have to pay them.&#8221;
Customers can also pay Equated Monthly Installment (EMI) through credit cards as they do with other consumer durables. These options are only meant for the components, where the customer comes to the counter, buys the battery/inverter/panel, swipes his credit card, and then pays the EMI later. Sanjay added that Luminous has an agreement with Pine Labs &#8211; an Indian merchant platform that provides financing and last-mile retail transaction technology.
As for customers who want full-fledged installations, Sanjay said, &#8220;We tie-up with financial institutions such as IDBI and YES Bank, we don&#8217;t offer direct financing. The institutions will assess the creditworthiness, the project size, and, based on that, the loan is approved and disbursed.&#8221;
Installers Vouch for Alternative Means of Funding
When Mercom spoke with various residential rooftop installers, their responses showed clear disdain for bank finance. According to some installers, it makes more sense to opt for a consumer durable loan or a personal loan instead of going for a home loan top-up or NBFC financing.
Sushil Sarawagi, Director of Kor Energy, said, &#8220;There are certain specialized products which the banks have floated for residential rooftop solar. The RBI has instructed banks and NBFCs to include rooftop installations under home loans. But the issue is that under home loans or home improvement loans, the customer has to mortgage their property for ₹500,000-₹1 million (~$6,746-~$13,493). This becomes a bone of contention for the customers.&#8221;
He further added, &#8220;Although we refer our clients to banks, they are not keen on bank financing as they find the whole documentation and mortgage process cumbersome. Our customers are seeking easy finance options similar to consumer durable loans. Through such options, they secure finance for a year or so without significant documentation or any mortgage.&#8221;
Arshi Chadha, COO of Sunson Energy, raised similar sentiments and stated that it&#8217;s more feasible to finance residential properties in a cluster (such as housing societies) instead of funding one residential property. It ensures that payments keep flowing.
&#8220;We are experimenting with a new financing model on a pilot basis where we are approaching clients whom we know will stay with us in the long-term, and we take 50% of the payment from them upfront during the installation phase. The remaining 50% would be under the EMI option,&#8221; Arshi told Mercom.
Arshi added that although Sunson works on securing loans, the deals are quite expensive. &#8220;The rates are high as 16% whether our clients approach banks or NBFCs, and it makes more sense to go for personal loans. I have gone to every bank&#8217;s head office, from Bank of Baroda to SBI. Banks like SBI will only finance rooftop installations as a top-up loan. One of my clients owns a 50-year-old home worth ₹100 million (~$1.3 million); why would they give it as collateral for a ₹1million (~$13,493) loan. The ideal way to finance rooftop installations is through loans with zero collateral.&#8221;
In summation, there are plenty of choices for the end consumer to finance their rooftop solar installation &#8211; from conventional mortgage loans to &#8216;no security&#8217; personal loans and even over the counter credit card payment options. It boils down to being aware of all the available options to make the right financing choice.
Contact us by filling out this <a href="https://mercomindia.com/lead-generation-form/" target="_blank" rel="noopener noreferrer">form</a> if you are planning to install a rooftop solar system for your home.

Residential Rooftop Solar Loans: All You Need to Know

The rapidly expanding renewable energy in India <a href="https://mercomindia.com/solars-share-india-total-installed-power-capacity/" target="_blank" rel="noopener noreferrer">accounted</a> for almost 36% of India’s total power capacity mix at the end of the calendar year (CY) 2019. The country’s total installed power capacity stood at about 371 GW as of December 31, 2019. Of this, renewables (including large hydro) accounted for about 133.2 GW. This growth signals that the sector needs to be given a distinct status decoupling it from the conventional power sector.
The lending to the sector also needs special focus, especially after the non-bank financial companies (NBFCs) <a href="https://mercomindia.com/nbfc-crisis-financing-challenges-utility-scale-solar/">crisis</a>, brought lending to the sector to a screeching halt. Due to a growing number of NPAs, funds started drying up, making it tough for financial institutions to extend credit to sectors overall.
This crisis triggered the Reserve Bank of India (RBI) to begin Prompt Corrective Action (PCA) on most of the public sector banks, which stranded lending by these banks to any sector, including renewables.
PCA is a structure under which banks with weak financial indicators are kept under watch by the RBI. While under this radar, banks are mandated to cut lending to corporates and focus on reducing the concentration of loans to certain sectors. Under this framework, if NPAs are more than 12% of loans extended, they are considered high risk, and banks have to stop lending and start the recovery of funds. Since most bank activities are supported by deposits that need to be repaid, a bank must carry a sufficient amount of capital to continue its activities. So, only banks with better capital can have more lending ability.
Thermal projects are highly capital intensive and also the ones that have turned NPAs. Owing to this, lending to the power sector received a blow after the PCA kicked off post the NBFC crisis. Since renewable energy falls under the broader umbrella of the power sector, it suffered the same fate as other power projects.
“As the renewable energy industry tries to get back on its feet post coronavirus lockdown, the availability of financing is going to be a big challenge as banks will be wary of lending. It is time to unshackle the renewable sector from the larger fossil fuel sector so the industry can realize its full potential without the caps and limitations,” said Raj Prabhu, CEO of Mercom Capital Group.
Hope was that with the government’s support, the renewable energy sector would grow at a rapid pace, and the funding from the banks would increase. But this has not been the case, and the low lending levels over the past two years has dampened the spirit of stakeholders. For the renewable sector to grow and meet the 175 GW target for 2022, lending needs to become freely available, which will not happen without decoupling renewable energy from the conventional power sector.
Addressing the issue, Rajendra Kumar, Deputy General Manager at IREDA, commented, “The sector has matured, and the underlying strengths of the sector, such as transparent project allocation through competitive bidding route, absence of fuel risk, predictable cash flows, long-term power offtake agreements and government’s thrust for the sector are paving the way for a brighter future. It may not be correct to assume that lenders are not willing to lend to the renewable energy sector. The solar sector, among all the renewable energy sector, is one of the most promising sectors for lenders to enhance their loan book size. IREDA itself has sanctioned and disbursed its highest loan amount during the last financial year in the solar sector, and the results have been quite satisfactory.”
Among renewables, the solar sector has grown rapidly in the past ten years. By the end of 2019, the cumulative solar installations <a href="https://mercomindia.com/india-solar-installations-2019-declined/" target="_blank" rel="noopener noreferrer">reached</a> approximately 35.7 GW. Large-scale projects account for 31.3 GW, whereas rooftop solar installations have just about reached 4.4 GW. Large-scale solar pipeline stands at 23.7 GW, with 31.5 GW of tendered projects awaiting auctions.
This magnitude of installations calls for more banks to lend to the solar sector.
“There is no separate renewable energy sector line item prescribed by the RBI. Due to the stress in thermal power projects, the majority of the banks have NPA issues, and their sectoral limits are exhausted. The banks avoid giving long-term loans as required by the sector (average 20 years) due to asset-liability mismatch in their balance sheet. The public sector undertakings (PSUs) are rigid around capital structure and don’t agree on equity, and compulsory convertible debentures structure, forcing developers to bring in full, common equity. There is very little push from the government on the banks to provide separate renewable energy project approvals,” says Shyam Sharma, CFO, <a href="https://amp.energy/" target="_blank" rel="noopener noreferrer">Amp Energy</a> India.
“Further, there are a lot of unresolved NPA issues in the thermal power sector on account of cost overruns, coal mine cancellations, and price increase in imported coal. It’s high time that the Reserve Bank of India intervened to address project funding requirements for the renewable energy players. RBI has maintained a stance that they do not have any objection to banks categorizing power and renewable energy sectors separately for lending so that funds would flow more to Renewables,” added Sharma.
It’s time that the Reserve Bank of India (RBI) took stock of the situation and decoupled the lending to renewables from the power sector, and this may provide the much-needed boost to the renewable sector.
Highlighting the need for the RBI to intervene, added, “Although renewables are part of the power sector, a separate limit for renewables may unlock the exposure barriers for banks and may provide the much-needed push for the financing of green energy projects. Accordingly, RBI intervention in terms of segregation of renewables from the usual power sector projects will be a welcome move for the sector. It would complement the Ministry of Finance budgetary outlay for ₹220 billion towards the power &amp; renewable energy sector for FY 2020-21.”
Falling tariffs, late payments by DISCOMs, issues of power evacuation, and the growing number of NPAs in the thermal sector are just some of the issues that have led lenders to move away from the renewable sector.
According to an official at SBI, one of the largest lenders to the solar sector among public sector banks, “We are actively financing solar projects. We breached our threshold, but continue to lend – this is the management’s discretion. Other private banks have breached the internal threshold levels for power sector lending and have decided not to lend further. Renewable energy lending has to be separated from power sector lending. The Ministry of New &amp; Renewable Energy (MNRE) has also said this, but now the matter is with the RBI.”
In a meeting last year, Union Power Minister R.K. Singh <a href="https://mercomindia.com/removal-priority-sector-lending-limit-renewable/" target="_blank" rel="noopener noreferrer">asked</a> the banks and financial institutions to categorize renewable energy as a separate sector, different from the power sector, so that funds can easily flow to renewable energy projects. So far, nothing has come of it yet.
The Indian solar sector has been brought to a standstill by the Coronavirus pandemic, and the future looks testing in these extraordinary times. While the government has come up with a slew of measures to get the sector back on its feet and help it remain unscathed by this invisible enemy, the future still looks gloomy, and it seems like it’s going to take a while before things get back to normal.
“Let’s be honest &#8211; renewables are the future. For the past three years, solar and wind have made up more than 50% of new power capacity. The energy transformation from fossil fuels to renewables is already happening, but lending limitations are set based on what the reality was a decade ago. It is time for RBI to recognize that solar and wind are the main new sources of energy generation in India and treat them accordingly,” Prabhu added.
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Image credit: Hero Future Energies

Time is Now for RBI to Categorize Renewables as a Separate Sector, Remove Lending Limits

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