#TIL: Placing Priorities on Clean Mobility Financing: PSL Status for EV Purchases
By Yash Narain
In a developing country like India, economic and social inequality is usually the result of unequal opportunities for growth. In the absence of equitable access to formal credit, many sectors that may have a large social impact, albeit with little or no immediate monetary return on investment, may find it hard to realise the true extent of their potential. To rectify this imbalance, the Reserve Bank of India (RBI) mandates banks to lend a certain proportion of their lending capital to sectors of the economy and segments of the population that may otherwise face constraints in readily accessing affordable, formal credit.
This policy, called Priority Sector Lending (PSL), makes sure that the sectors which help achieve existing and emerging national priorities in sync with an inclusive and sustainable development agenda are not neglected. Socially and economically marginalised sections of the population including women, persons with disabilities, small and marginal farmers, etc. are also included under the ambit of this policy.
PSL has, therefore, been “an important way in which policy-makers have embedded the social contract in the Indian banking system.”
PSL is currently set at 40% of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher for Commercial Banks, and 75% for Regional Rural banks and Small Finance Banks.
Sectors currently eligible for priority sector lending include Agriculture, MSME, Education, and Housing among others. Renewable energy- easing the provision of loans for purposes such as solar & biomass-based power generators, wind mills, micro-hydel plants, and non-conventional energy-based public utilities- was added to the list in 2015. India’s PSL policy has had considerable success in improving the performance of Micro and Small Enterprises, and Exports Sectors- showing an increasing trend in the sectoral GDP growth relative to credit supply numbers.
With the Central and State Governments making the switch to cleaner forms of transport a priority for the coming decade, India could consider granting PSL status for the purchase of EVs, gliders, and Li-ion batteries for individual and commercial purposes given the immense environmental and social benefits that accrue on account of mass adoption of EVs. Electric vehicles have traditionally struggled to compete against internal combustion engine vehicles due to the relatively higher upfront costs. Easy and assured access to credit for the purchase of EVs could help offset that price differential and pave the way for their mass adoption.
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