World Bank and SIDBI to launch fund against loan default to lenders financing purchase of electric 2 & 3 Wheelers

A $1 billion fund may soon be launched by the government in collaboration with the World Bank, and the Small Industries Development Bank of India (SIDBI). The fund will be used to provide guarantees against defaults on loans taken to buy electric two or three-wheelers. The NITI Aayog will be the facilitating agency of the project. It will aim to facilitate faster and easier financing of EVs.

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Manner In Which It Will Be Done:

Initially a $300 million fund will be put in place as a “first loss risk sharing instrument.” The funds will be available to all financial institutions. “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 per cent”.

Current Situation:

Currently, loans for electric two-wheelers and three-wheelers attract 20-25 per cent interest per annum. Earlier, the State Bank of India (SBI) was considered to be the programme lead. However, it withdrew from the deal after due diligence. Banks have continued to stay cautious on financing EVs after losing money on e-rickshaws and other EVs powered by lead-acid batteries. Even as banks have maintained their distance from financing such vehicles, several NBFCs have come forward to take the role. In the fiscal year of FY23, EV sales in India are expected to cross a million units, an 84 per cent rise year-on-year.

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