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Banks may soon consider a separate sectoral limit for projects related to renewable energy sources.
Renewable energy’s share in the total installed electricity generation capacity is about 12 per cent. Its sources include biomass, small hydro power, wind power and solar power. The sector is estimated to add 18,500 MW of capacity.
At present, renewable sources form part of the entire power sector for determining sectoral exposure in bank advances, with each bank internally determining the cap.
The issue of separate sectoral limit came up for discussion during a meeting between the Finance Minister and the chiefs of public sector banks and financial institutions on March 18.
Crowding out
“Banks have a tendency to provide finance to conventional power projects or projects having generation based on conventional fuel such as coal and gas. This has led to crowding out of finance for the renewable energy sector,” a senior Government official told Business Line .
According to Reserve Bank of India data on sectoral deployment of gross bank credit, as on January 25, 2013, loans to power sector amounted to Rs 4.07-lakh crore, against Rs 3.28-lakh crore on March 23, 2012.
Considering the importance of promoting renewable energy sources, it was suggested that banks could consider carving out a separate sectoral exposure limit. “This could be either through prescribing an independent exposure limit or by way of a sub-limit within the exposure limit for the power sector as a whole,” the official said.
Last July, the RBI had allowed loans sanctioned directly to individuals for setting up of off-grid solar and other renewable energy solutions for households as priority sector lending. Now, banks can step up lending to such projects, which would help them achieve targets prescribed under priority sector lending, while supporting the growth of renewable sources, the official added.
Higher risk
Renewable energy is capital-intensive and has lower operation and maintenance costs. However, the risks involved are high and the viability of a project depends upon factors such as regulatory support and technology trends. In view of the perceived high risk, the interest rate for renewable energy projects is high. And, because of smaller project sizes, tapping overseas markets for the sector is also not attractive option.
> shishir.Sinha@thehindu.co.in
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