India’s Largest Bank Commits $12.5 Billion For Renewable Energy Funding
Private sector project developers in India’s rapidly growing renewable energy would be happy to have the backing of the country’s largest bank as they get ready to participate in cut-throat competitive bidding.
The State Bank of India (SBI) has committed to provide $12.5 billion in debt funding to renewable energy projects over the next few years. The announcement was made at the RE-INVEST summit organised by the Ministry of New and Renewable Energy.
The bank hopes to provide debt financing to 15 GW of renewable energy projects, most of which are likely to be based on wind and solar energy.
Financing has been a major issue for the renewable energy sector in India. Increased competition in auctions for solar power projects has cut the tariffs by nearly 70% since 2010. Indian banks are known to question the financial viability of projects secured at seemingly low tariffs. Solar power projects have especially received unfavourable response from the Indian banks as solar photovoltaic power tariffs have been falling while wind energy tariffs have risen slowly but steadily over the last few years.
The lending rates in India are also significantly higher than other countries. SBI and other national banks usually provide debt at interest rates as high as 11% to 12%. Compared to this, development banks like KfW and US Export-Import Bank and multilateral banks like Asian Development Bank and the International Finance Corporation provide funding at rates as low as 4%.
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Over the last few years some private banks in India have signed deals with development banks to provide loans at concessional rates. The Indian Renewable Energy Development Agency (IREDA) is also expected to provide loans at low rates following its recent agreements with the European Investment Bank, Japan International Cooperation Agency, and the US Export-Import Bank.
The renewable energy sector in India has faced collateral damage for years due to the poor financial health of the power sector as a whole. Several power sector companies are reeling under millions of dollars of losses, and banks have exhausted their lending limits to the power sector. Unfortunately, renewable energy is considered a sub-sector to the power sector for lending purposes in the Indian banking regime. As a result, the Indian banks are unable to disburse any fresh funds to renewable energy projects.
This announcement by the country’s largest bank and the recent funding agreement worth $4 billion with the US is expected to boost the growth of the Indian renewable energy sector.
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