Niti Aayog has proposed Reserve Bank of India (RBI) to categorise loans to electric vehicles (EV) as Priority Sector Lending (PSL).

The inclusion of EVs under PSL would not only reduce cost of finance but also provide finance to more people to purchase electric vehicles, thus increasing penetration of EVs in India.

As per the Priority Sector Lending (PSL) framework, 40% of banks’ total credit must be compulsorily loaned to specific sectors as mandated by banking regulator to direct financing to encourage growth in these sectors. With the inclusion of electric vehicles under the PSL framework, banks will be required to compulsorily lend to electric vehicle customers. This will improve the availability of finance to EV customers and also reduce the financing costs.

As per reports, Niti Aayog is also working with the World Bank to set up a US $300 million ‘first loss risk sharing instrument’ to improve financing for EVs. State Bank of India is the programme manager for this facility, under which total financing is expected to be around US $1.5 billion. This facility will be used to mitigate financing risk for lenders giving loans to EV customers.

This proposal comes in the backdrop of India’s recent commitments at COP26 at the Glasgow Climate Change Conference whereby India has set itself a target of lowering the total projected carbon emissions by 1 billion tonnes till 2030, reducing the carbon intensity of the economy by less than 45% and cutting emissions to net zero by 2070.