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Will RBI remove priority lending limit for renewable energy?

July 2019
As reported, the Ministry of New and Renewable Energy (MNRE) has made a decision to request the Reserve Bank of India (RBI) to categorise renewable energy into a separate segment from power, and remove the priority sector lending limit for the sector to ensure higher financing. 
This request has come forth after RK Singh, Minister of State for Power and New and Renewable Energy, met with all stakeholders of the renewable energy industry. Reports indicate that the meeting was attended by officials from MNRE, Department of Economic Affairs, Department of Expenditure, Department of Financial Services, Department of Revenue, public and private-sector banks and financial institutions.

India has laid plans to achieve 175 gw of renewable energy capacity by 2022. Also, the Government plans to award 100 gw of solar and wind contracts by March 2020. And considering India’s target of 175 gw, the Government is also planning to complete the bid process by March 2020 to give developers adequate time to construct these projects.

It is expected that this development will help developers get access to easy finance. While Nikunj Ghodawat, CFO, CleanMax Solar, welcomes the strong impetus by MNRE to ensure the country meets its renewable target, he also states that availability of credit has been a brewing issue and has impacted the growth momentum of renewable energy in the past six months. He says, “The ministry's recommendation to RBI to categorise renewable energy into a separate segment from power and remove the priority sector lending limit for the sector to ensure higher credit financing availability will give a much-needed boost to the sector.” This is absolutely in line with CleanMax Solar's
recommendation earlier this year to remove the cap of Rs 150 million per year under priority sector lending for rooftop projects or at least increase credit limits significantly and remove it in a phased manner. “We are glad that the Government is helping in easy availability of credit and reducing the cost of capital,” adds Ghodwat. “This will result in speedy implementation of projects and reduce cost of construction, which can help us pass this benefit to our corporate power consumers.”

It is believed that this move will encourage public-sector banks to lend more for renewable energy projects and help renewable energy developers access easy finance. Now, it remains to be seen whether the RBI will indeed comply and remove the priority lending limit.