NITI Aayog, Rocky Mountain Institute (RMI), and RMI India released a report on Friday that proposed the inclusion of electric vehicles in the Reserve Bank of India's (RBI's) priority-sector lending (PSL) guidelines.
The report titled "Banking on Electric Vehicles in India" provides considerations and recommendations to inform the inclusion of EVs under PSL thereby directing retail lending towards the sector.
Banks and non-banking financial companies (NBFCs) in India have the potential to achieve an electric vehicle (EV) financing market size of Rs 40,000 crore ($5 billion) by 2025 and Rs 3.7 lakh crore ($50 billion) by 2030, NITI Ayog said in an official statement. However, retail finance for EVs has been slow to pick up, the report stated.
"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.
"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."
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.
"Buyers are unable to access low-interest rates and long loan tenures for EVs as banks are concerned about resale value and product quality. Priority-sector lending can encourage banks to fast-track India's transition to EVs and help achieve our 2070 climate goals," said Clay Stranger, Managing Director, RMI.
The report indicates that electric two-wheelers, three-wheelers, and commercial four-wheelers are early segments to prioritize under PSL. Moving forward, the engagement of other ministries and industry stakeholders will be important to ensuring the guidelines designed can effectively enhance EV investment in India.
To maximize the impact of the inclusion of EVs, the report also recommends a clear sub-target and penalty mechanism for priority sector lending to renewable energy and EVs. Furthermore, it suggests recognition of EVs as an infrastructure sub-sector by the Ministry of Finance and the incorporation of EVs as a separate reporting category under the RBI. Multiprong 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.