Niti Aayog and the World Bank prepare financing for electric vehicles

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Niti Aayog and the World Bank are working together to facilitate a faster and easier electric vehicle (EV) financing program after main street banks look lukewarm due to small resale market, probabilities of default higher and higher initial costs.

The two entities are putting in place a $ 300 million “first loss risk sharing instrument”, with the State Bank of India (SBI) as the program manager. This facility would seek to raise approximately $ 1.5 billion in financing for electric vehicles. The instrument would act as a hedging mechanism to which banks would have access in the event of default on loans for the purchase of electric vehicles, and should reduce the cost of financing electric vehicles by 10-12%, Amitabh Kant, CEO of Niti Aayog, says ET. The $ 300 million risk-sharing instrument would be institutionalized with SBI, and the funds would be available to all financial institutions as a first-loss instrument, Kant said.

“Difficult to determine the residual value”

The current interest rate for electric two-wheelers and electric three-wheelers is in the range of 20-25%. It should go down to 10-12%.

Electric vehicles still do not have a robust resale market, making it difficult for banks to determine residual value. This has led to a higher cost of financing for electric vehicles compared to ICE vehicles, Kant said.

Banks also say they weren’t too successful in financing electronic rickshaws earlier.

“Financial institutions had to bear losses in the event of default because their residual value was low,” Kant said.

This is why the banks are cautious.

“It’s a niche market and we want to test the waters first before we take the plunge,” said a senior official at a Mumbai-based private bank. “Currently there is very little demand in this segment, compared to other areas like home loans, small business loans which are experiencing much better growth.”

Another prominent banker said several electric vehicle buyers also do not have credit histories.

“We’re not averse to risk, but many of these clients are new to credit and come from segments typically supported by NBFCs,” the lender said. “The segment is quite small and overcrowded with fintechs and NBFCS.”

According to Sulajja Firodia Motwani, CEO of Kinetic Green, whose company specializes in electric three-wheelers, NBFCs and banks still do not see the financing of electric vehicles as a significant business opportunity. Motwani believes that the financial and banking community should create EV financing products.

Certainly, electric vehicle financing offers a more lucrative financing opportunity due to higher returns. Banks have some concerns about EV technology, warranty, battery life, etc., but with a proactive approach and dialogue with OEMs, these can be explained and addressed, Motwani said. .

Experts believe the government can help by giving electric vehicles priority lending status and creating a sizable fund from international banks like masala green bonds.

NBFCs such as Shriram City Union Finance (SCUF) and L&T Finance have partnered with many electric vehicle manufacturers and a number of dealers to provide loans to the electric vehicle segment.

“We think this is the next big thing for the 2W market and we are sort of going all blazing guns. Currently 20% of all 2W electric vehicles sold are in need of funding, but as production increases and as more middle and lower middle class customers start buying, electric vehicle financing will increase, ”said YS Chakravarti, Managing Director of SCUF, India’s second largest two-wheeler financier.


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