Govt considering inclusion of EVs in priority sector, to help funding access

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“It has to be discussed with the RBI. This will be a detailed examination. An entire review will need to be done for priority sector lending. Many sectors are demanding to get added in PSL,” a senior finance ministry official added.
By: ENS Economic Bureau
New Delhi | Updated: August 27, 2023 07:10 IST
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“We have received a representation to include EVs in the priority sector lending. We will look at reworking the priority sector lending requirements for banks,” the official said. (Representational image)
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The government in consultation with the Reserve Bank of India (RBI) is considering a proposal to include electric vehicles (EVs) in the priority-sector lending (PSL) category, a senior finance ministry official said on Saturday.

“We ave received a representation to include EVs in the priority sector lending. We will look at reworking the priority sector lending requirements for banks,” the official said.

“It has to be discussed with the RBI. This will be a detailed examination. An entire review will need to be done for priority sector lending. Many sectors are demanding to get added in PSL,” the official added.

Non-conventional energy sources including green hydrogen, green ammonia, and some other new renewables are likely to be considered for inclusion under priority-sector lending norms along with electric vehicles, officials said.

As per RBI guidelines, it is mandatory for banks to extend 40 per cent of their adjusted net bank credit to the priority sector. At present, seven sectors agriculture, Micro, Small and Medium Enterprises (MSME), export credit, education, housing, social infrastructure, and renewable energy are considered for priority-sector lending.

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Under the renewables sector as of ow, bank loans up to a limit of Rs 30 crore to borrowers for purposes like solar based power generators, biomass-based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities such as street lighting systems and remote village electrification are eligible for priority sector classification. For individual households, the loan limit is Rs 10 lakh per borrower.

Industry representatives from electric vehicles and new renewables sectors have been demanding for its inclusion under the PSL norms. About 48 projects on green hydrogen/green ammonia have been publicly announced in India as of June 2023.

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A total of 26,25,443 EVs have been registered in India since 2018 and 8,47,439 EVs were registered in India in 2023 (till August 3 this year), as per government data.

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In January 2022, NITI Aayog along with Rocky Mountain Institute (RMI) in a report titled ‘Banking on Electric Vehicles in India’ had outlined the importance of priority-sector recognition for retail lending in the electric mobility ecosystem. It had given recommendations for inclusion of EVs in the RBI’s priority-sector lending guidelines stating that banks and non-banking financial companies in India have the potential to achieve an EV financing market size of Rs 40,000 crore by 2025 and Rs 3.7 lakh crore by 2030.

The report had stated that electric two-wheelers, three-wheelers, and commercial four-wheelers should be the early segments to prioritise under priority-sector lending stressing on the greater need for formal credit, higher potential for job creation and scale in urban and rural areas, relatively high sales forecasts, greater odel availability, and smaller gap to parity in total cost of ownership.

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The report had also recommended a sub-target and penalty mechanism for priority-sector lending to renewable energy and EVs along with a suggestion for 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

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