Government considers boosting EV sector via priority lending

01 Aug 2023

The government is considering a significant move to boost the electric vehicle (EV) sector by potentially including EV infrastructure in the priority sector lending (PSL) category. A senior official revealed this development, highlighting the potential for substantial support to the EV industry.

Current RBI guidelines require banks to allocate 40% of their adjusted net bank credit to the priority sector. Presently, PSL encompasses seven sectors, including agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, and renewable energy.

The government's aim is to increase the prevalence of EVs on Indian roads as part of its efforts to achieve net-zero emissions. Subsidies are provided to manufacturers through the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (FAME) program. The potential inclusion of EV infrastructure in PSL is anticipated to facilitate increased credit flow to the sector by mandating financial institutions' involvement.

A January 2022 report by Niti Aayog highlighted the suitability of electric two- and three-wheelers, as well as commercial four-wheelers, for inclusion in priority sector lending.

Notably, EV sales surpassed 700,000 in the first half of 2023, demonstrating the sector's rapid growth.

Previously, reports suggested that banks were advocating for the inclusion of electric vehicle infrastructure and green hydrogen projects within priority sector lending.

The report also emphasised the significance of substantial investment, estimating cumulative investments of up to $266 billion between 2020 and 2030 for India's electric vehicle transition. This underscores the necessity for increased liquidity and reduced capital costs for EV assets and infrastructure.

Additionally, it was indicated that non-life insurance companies were unlikely to receive capital infusion in the current year, as their financial positions are relatively stable.

The government is also taking steps to expand micro-insurance coverage, encouraging banks to extend accident and life insurance schemes to Pradhan Mantri Jan Dhan Yojana (PMJDY) account holders. The goal is to provide comprehensive micro-insurance to a larger portion of the population, with the potential involvement of Anganwadi workers in promoting such initiatives.

Furthermore, the government is exploring opportunities to collaborate with the labour ministry and leverage the E-Shram portal to enhance coverage for schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana.

This initiative aligns with the recent announcement that the number of PMJDY accounts has reached 500 million, with the average balance in these accounts increasing significantly over the past nine years.

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