Banks and non-banking financial companies (NBFCs) in India have the potential to achieve an electric vehicle (EV) financing market size of ₹40,000 crore by 2025 and ₹3.7-lakh crore by 2030, according to a report by NITI Aayog, Rocky Mountain Institute (RMI), and RMI India.
“Retail finance for EVs has been slow to pick up. Financial institutions have an important role to play in accelerating the adoption of EVs in India and supporting the de-carbonisation of road transport,” said Amitabh Kant, CEO, NITI Aayog.
Estimates say India’s EV finance market could reach ₹3.7-lakh crore ($50 billion) in advances by 2030. Priority sector lending (PSL) can be a crucial pathway to helping realise this potential.
If designed well, it can incentivise banks to finance EVs and improve finance for NBFCs, while institutionalising the importance of the EV sector within the financial industry, said the report.
PSL status
Various stakeholders including the Society of Electric Vehicle Manufacturers have already made a plea to the finance minister to consider PSL status for EVs in the upcoming Budget.
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.
“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.
Considering the socio-economic potential, livelihood generation potential scalability, techno-economic viability, and stakeholder acceptability, market-ready electric 2Ws, 3Ws, and commercial 4Ws currently offer the ideal starting point for PSL inclusion.
“If EV financing is placed under the priority sector status, it would subsequently create a robust ecosystem for electric vehicles. Therefore, more citizens can afford EV at lower interest rates and avail fringe benefits in the form of a tax deduction on loans, an incentive implemented by the government the preceding year,” said Sumit Chhazed, Co-founder, OTO Capital.
To maximise the impact of the inclusion of EVs, a clear sub-target and penalty mechanism for priority sector lending to renewable energy and EVs is recommended.
Also, the report 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..