Classifying EV Financing Under PSL Can Support Growth Of Electric Mobility In India

Mufin Green Finance, a leading non-banking financial company (NBFC) specialising in green financing, is driving change in India’s electric mobility sector. Under the leadership of Managing Director Kapil Garg, the company has been advocating for policy shifts to accelerate EV adoption. “Classifying EV financing under Priority Sector Lending (PSL) can bolster the financial ecosystem for NBFCs, enhancing affordability and accessibility for consumers,” says Garg in an exclusive interview with Bizz Buzz.

He emphasises the importance of targeted measures in the Union Budget 2025, such as fiscal incentives, credit lines, and interest rate subvention schemes, to reduce financial barriers for EV buyers. Garg also highlights the potential of blended finance models and government-backed credit guarantee schemes to mitigate risks and stimulate innovation

What are your expectations from the Union Budget 2025 in terms of policy support for EV financing?

In the Union Budget 2025, the government has an opportunity to boost electric vehicle (EV) adoption through targeted policy measures to strengthen EV financing. Introducing fiscal incentives for non-banking financial companies (NBFCs) involved in EV financing can help reduce their operational costs, leading to lower lending rates for consumers and making EV ownership more accessible.

Establishing credit lines or refinancing options through institutions like the Reserve Bank of India (RBI) can improve liquidity for NBFCs, increasing their lending capacity. Interest rate subvention schemes for end-users can further reduce the financial burden on buyers, stimulating EV demand. Providing tax benefits or loan reductions for EV purchases can motivate consumers. These measures address financial barriers and support India’s goals of reducing carbon emissions and improving energy security. Accelerating EV adoption can also create jobs in manufacturing and related sectors, contributing to economic growth and environmental sustainability. A well-designed EV financing policy can help build a cleaner and more sustainable transportation system.

How could the classification of EV financing under priority sector lending (PSL) benefit NBFCs?

Classifying EV financing under Priority Sector Lending (PSL) can support the growth of electric mobility in India by improving the financial ecosystem for non-banking financial companies (NBFCs). PSL classification requires banks to allocate a portion of their lending to priority sectors, often at favorable terms, encouraging them to provide credit to NBFCs focused on EV financing. This access to affordable capital allows NBFCs to offer competitive financing solutions, lowering the upfront cost for EV buyers. Reduced financing rates can improve EV affordability, increasing adoption across various income groups.

Additionally, the PSL classification supports India’s goals of reducing carbon emissions and promoting sustainable transportation. NBFCs have expanded their EV financing portfolios, reaching underserved markets like rural and semi-urban areas where affordability has been a key barrier. By addressing these gaps, PSL classification can promote an inclusive approach to green mobility. Furthermore, the focus on EV financing under PSL can encourage innovation in financial products, such as lease-to-own models or low-interest loans. This policy shift can play a key role in India’s transition to a cleaner transportation system.

What measures can the government take to improve credit access for NBFCs focused on green financing?

Improving credit access for non-banking financial companies (NBFCs) specializing in green financing is essential for advancing India’s sustainability goals. The government can implement several measures to support these institutions. Establishing partial credit guarantee schemes can reduce risks associated with lending to emerging green technologies, encouraging financial institutions to provide credit. These guarantees offer a safety net for lenders, reducing concerns about defaults and increasing confidence in green investments.

Providing tax incentives to investors funding green-focused NBFCs can also attract private capital to the sector. Additionally, introducing interest rate subsidies for green projects can reduce borrowing costs, making them more appealing to both lenders and borrowers. Streamlining regulatory frameworks to support the issuance of green bonds can offer NBFCs alternative funding options. These bonds can attract environmentally conscious investors and help NBFCs diversify their capital base. Creating dedicated green finance funds or partnering with international development agencies for concessional funding can further strengthen the financial ecosystem. By implementing these measures, the government can help NBFCs scale their operations, finance innovative projects, and support India’s transition to a low-carbon economy, promoting sustainable development across sectors.

How could blended finance models involving the government, NBFCs, and development finance institutions (DFIs) benefit the sector?

Blended finance models, combining resources from the government, non-banking financial companies (NBFCs), and Development Finance Institutions (DFIs), offer an effective way to address funding challenges in green finance. By using public funds to reduce the risk for private investments, these models attract more capital to sustainable projects.

Government contributions, such as concessional loans or guarantees, help lower the risk of green investments. This encourages NBFCs and private investors to direct resources confidently toward renewable energy, electric vehicle (EV) financing, and other sustainable initiatives. DFIs provide technical expertise and funding support, enhancing the viability of large-scale projects. The pooling of resources and knowledge from different stakeholders promotes innovation in financing, enabling tailored solutions for specific challenges in green finance. For example, concessional funding from DFIs can lower capital costs, allowing NBFCs to offer affordable loans to consumers. This approach ensures efficient resource allocation and broader financial services. Moreover, blended finance models align with national and global sustainability goals, supporting economic growth while addressing environmental issues. By promoting such models, stakeholders can unlock the potential of green finance and accelerate India’s transition to a sustainable economy.

What is your view on the implementation of government-backed credit guarantee schemes to reduce risks in EV financing?

Government-backed credit guarantee schemes can help address challenges in financing electric vehicles (EVs). These schemes offer financial institutions, including non-banking financial companies (NBFCs), partial coverage against loan defaults, reducing the risks associated with lending to the emerging EV sector. By providing such guarantees, the government can boost lender confidence, allowing them to extend credit to a broader customer base, including individuals and small businesses with limited credit histories.

This risk-sharing mechanism can also encourage NBFCs to offer innovative financial solutions, such as low-interest loans or lease-to-own models, suited to the needs of EV buyers. Additionally, credit guarantee schemes can attract new participants to the EV financing market, increasing competition and lowering lending costs. For consumers, this means more affordable financing options, making EVs more accessible. On a larger scale, these initiatives align with India’s goals of reducing carbon emissions and supporting sustainable transportation. By bridging the gap between risk and opportunity, government-backed guarantees can boost EV adoption, stimulate industry growth, and contribute to a cleaner, energy-efficient future.

How could the reduction of GST rates on EVs, components, and charging infrastructure impact the EV ecosystem?

Lowering Goods and Services Tax (GST) rates on electric vehicles (EVs), their components, and charging infrastructure can have a transformative impact on the EV ecosystem. Reduced GST rates directly lower the cost of EV ownership, making them more price-competitive with internal combustion engine (ICE) vehicles. This can significantly boost consumer interest and adoption, particularly in price-sensitive markets like India. For manufacturers, lower GST rates on components reduce production costs, enabling them to pass on savings to consumers or reinvest in innovation.

Charging infrastructure, often considered a bottleneck for EV adoption, can also benefit from reduced GST rates. Cheaper installation and operational costs can encourage the development of widespread charging networks, addressing consumer concerns about range anxiety. The cumulative effect of these changes fosters a conducive environment for the EV industry, stimulating demand, production, and infrastructure development simultaneously. Additionally, tax rationalization aligns with India’s broader goals of reducing carbon emissions and achieving energy security by promoting cleaner mobility solutions. The cascading benefits, from increased adoption to enhanced industry competitiveness, underscore the critical role of GST reforms in shaping a sustainable transportation future. Policymakers can leverage this tool to create a robust and inclusive EV ecosystem.

Should sustainability-linked incentives be introduced to align NBFC financing practices with India’s green mobility goals?

Sustainability-linked incentives can help align the financing practices of non-banking financial companies (NBFCs) with India’s green mobility goals. These incentives could include tax benefits, lower-cost funding, or favourable regulatory treatment for NBFCs that meet set green financing targets. For example, institutions meeting benchmarks in electric vehicle (EV) financing or renewable energy projects could access concessional funds or lower compliance costs, encouraging more investment in sustainable initiatives. Performance-based incentives tied to environmental metrics, such as reductions in carbon emissions, can ensure NBFCs contribute to green goals.

This approach not only shifts lending practices but also promotes accountability and progress. Additionally, these incentives can encourage innovation in financial products for green mobility, such as low-interest EV loans or flexible repayment plans for sustainable projects. By fostering cooperation between regulators and financial institutions, sustainability-linked incentives can drive industry-wide change. These measures can play a key role in accelerating India’s transition to a greener economy, ensuring that financial practices support long-term environmental and social goals.