Include EVs in RBI's PSL guidelines
GS Paper - 3 (Energy)
NITI Aayog, Rocky Mountain Institute (RMI), and RMI India released a report, titled ‘Banking on Electric Vehicles in India’, which outlines the importance of priority-sector recognition for retail lending in the electric mobility ecosystem. The report provides considerations and recommendations to inform the inclusion of EVs in the Reserve Bank of India’s (RBI’s) priority-sector lending (PSL) guidelines.
What the report said
- The 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 by 2025 and Rs 3.7 lakh crore by 2030. However, 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 decarbonisation of road transport.
- 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.
- In order to meet these goals, the Aayog has suggested in the report 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.
- The Aayog has suggested in the report that electric two-wheelers, three-wheelers, and commercial four-wheelers are early segments to prioritize under PSL.
- Further, 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.
- 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.