A billion dollar fund for 2/3-wheeler EV financing is on anvil – ET Auto

The government, World Bank and Small Industries Development Bank of India (SIDBI) are set to launch a $1 billion fund to provide guarantees against loan default to lenders financing purchase of electric two- and three-wheelers, three people aware of the development said.

The entities will initially set up a $300 million “first loss risk sharing instrument”, a person involved in the talks said. “The funds would be available for all financial institutions to access as a first-loss instrument,” he said.

“The instrument would act as a hedging mechanism, for banks to access in case of defaults of loans on purchase of electric vehicles. This is expected to bring down the cost of financing EVs by 10-12%,” said the person.

A billion dollar fund for 2/3-wheeler EV financing is on anvil
Currently, the interest rate on loans to purchase electric two- and three-wheelers is 20-25%.

The Niti Aayog is the facilitating agency for the project, aimed at facilitating faster and easier financing of electric vehicles. The World Bank, Niti Aayog and SIDBI did not respond till press time Monday to emails seeking comment.

ET reported in October last year that government think tank Niti Aayog and the World Bank were in discussions to set up a $300 million loss-sharing mechanism to compensate banks giving loans for electric vehicle purchases. Total financing under the programme was estimated around $1.5 billion.

State Bank of India was being considered as the programme lead, but it moved out of the partnership as banks still consider EV as a risky segment. SIDBI will now be the implementing institution for the programme.

SBI moved out of the partnership as banks still consider EV as a risky segment, said a second person. “After a due diligence, it didn’t seem feasible for SBI to be the programme lead, as it had concerns with respect to EV technology, warranty, battery life,” he said.

SIDBI has of late been spearheading India‘s efforts towards sustainable development goals by tying up with multiple small and medium companies to increase energy efficiency in their operations.

Banks have continued to shy away from this segment as they burnt fingers losing money on financing e-rickshaws, and other two- and three-wheelers powered with lead-acid batteries. Even as banks have maintained an arm’s length questioning the commercial viability and resale value of these vehicles, several non-bank lenders and digital financiers have taken the lead in financing this segment.

“Over the last few months, the EV financing segment is getting crowded by many fintech companies and NBFCs who have stepped into finance EVs with a competitively lower rate (than earlier) of interest,” said the chief executive of a company manufacturing electric two-wheelers.

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