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The RBI may bring the renewable energy sector under the ambit of Priority Sector Lending (PSL) by the banks. The Reserve Bank of India (RBI)’s Internal Working Group recently submitted its recommendations to re-examine the existing classification and suggested revised guidelines with regard to Priority Sector Lending. The Group has also recommended that the target for lending to the redefined priority sector may be retained at 40 per cent of ANBC or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE), whichever is higher, for all scheduled commercial banks uniformly.
This may means that banks can now have a freedom to move away from bad lending in some sectors and there can be spurt in renewable energy bank finance in the country once RBI accepts the recommendation of the Group, and notifies the revised policy soon. The Government has increased it national renewable energy target to 175 GW by 2022 and an investment requirement of $200 Billion is estimated. Bringing renewable energy as a whole in the priority sector lending ambit is an important step towards credit availability for public and private investors. This has been a long-time demand by all sections of stakeholders in the renewable energy sector.
In view of the increasing importance of renewable sources of energy and in order to give further impetus to this segment, the Working Group recommends that bank loans up to Rs. 10 crore ($1.598 million) to borrowers other than households, for purposes like solar-based power generators, biomass- based power generators, wind mills and micro-hydro plants and for purposes like non-conventional energy-based public utilities viz., street lighting systems, remote village electrification, etc. be included under priority sector. For household sector, the loan limit may be Rs. 5 lakh ($7,989).
The Climate Parliament network of MPs has been advocating for recognition of renewable energy as a priority sector for lending since a long time. In one of our letters to Finance Minister in 2013, Climate Parliament MP suggested to Include Renewable energy projects under the Priority Sector Lending Category in view of the fact that the erstwhile Planning Commission had envisaged a strong role of the private players in this sector. It has estimated a contribution of 88% (280198 Cr.) of total investments in the renewable energy in the 12th five year plan, an increase of 3.5 times over the 11th plan’s estimations.
Such investments would not be possible without a strong support from the financing sector. An Expert Report titled ‘Policy, Regulatory and Financial Initiatives to Augment Renewable Energy Deployment in India’ commissioned by Climate Parliament also recommended Priority sector lending status for renewable energy based on extensive stakeholder consultation. The report was submitted to various important sections of the former as well as the present Government, including the Minister for Coal, Power and New and Renewable Energy Mr. Piyush Goyal.
Climate Parliament welcomes the recommendation from the RBI Internal Working Group. However, it would also like to take the opportunity to raise the issue of the limit of INR 100 Million ($1.598 million) proposed for borrowers given the high upfront capital cost for renewable energy projects and the scale the Government intends to reach. The timeline of 2018 and 2020 allowed to foreign banks to revise action plans and comply with the Guidelines is also rather lenient considering the bulk of the investments for renewable energy will be required in the next 2-3 years, if a target of 175 GW has to be realized by 2022.
As a network working to promote and support renewable energy initiatives, Climate Parliament would like to urge the RBI to raise this cap of INR 100 million ($1.598 million) in consultation with the Government.