Banking on Electric Vehicles in India Report

Context: In its report, NITI Aayog has suggested including electric vehicles in the priority sector of lending guidelines of RBI. 

Key Points

• 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 (USD 5 billion) by 2025 and Rs 3.7 lakh crore (USD 50 billion) by 2030. However, retail finance for EVs has been slow to pick up.
• 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.

RBI shall consider electric vehicle segments and use cases based on five parameters. 

• They are stakeholder acceptability, techno – economic viability, scalability, generation potential, livelihood and socio – economic potential.

The report suggests to focus on electric two wheelers, commercial four wheelers and electric three wheelers.

• Recommends a clear sub-target and penalty mechanism for priority sector lending to renewable energy and EVs

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 will also help India achieve its 2070 net-zero target.
• It suggests the Ministry of Finance to consider the electric vehicle sector as an infrastructure sub sector.
• The other ministries should be pulled into the Electric Vehicle sector in the future.

Objective

• Outlines the importance of priority-sector recognition for retail lending in the electric mobility ecosystem
• Provides considerations and recommendations to inform the inclusion of EVs in the Reserve Bank of India’s (RBI’s) priority-sector lending (PSL) guidelines.

Key Significance

• 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.
• This will give a push to retail lending of electric vehicles. According to the report released by NITI Aayog, the financing market size of electric vehicles is to increase to Rs 40,000 crores by 2025. And it is to increase to Rs 3.7 lakh crores by 2030.

Road Ahead

• By listing electric vehicles in priority sector lending, they will receive better credit penetration. Also, it will increase lending to small and medium scale industries working around the sector. Also, it will increase employment opportunities in the country.