Reserve Bank Of India Notifies Renewable Energy Under Priority Sector Lending

In an attempt to align itself with the policy priorities of the Indian government, the Reserve Bank of India has revised the priority sector lending norms, and has accorded priority sector lending status for renewable energy.

Other categories included under priority sector lending are agriculture; micro, small, and medium enterprises; export credit; education; social infrastructure and housing loan.

The priority sector guidelines do not lay down any preferential rate of interest for these priority sector loans.

In its report, the Reserve Bank of India’s (RBI) internal working group, which has suggested the revisions in priority sector lending guidelines, says that “the emphasis now, over and above lending to vulnerable sections, is to increase employability, create basic infrastructure and improve competitiveness of the economy, thus creating more jobs”.

Financing woes have hindered the uptake of small-scale commercial and industrial renewable energy projects. The inclusion of renewables under priority sector lending is expected to solve some of these problems, especially for rooftop solar.

As per RBI’s notification, banks can now provide loans up to a limit of Rs 150 million to borrowers for solar, biomass, wind, and micro-hydel power generation, and also for renewable energy based public utilities like street lighting systems and remote village electrification. For individual households, the loan limit has been set to Rs 1 million per borrower.

Loans for generation and use of renewable energy in households are already included under priority sector.

As per the new mandate, all the banks will have to lend at least 40% of their net credit to the priority sector. Foreign banks with less than 20 branches have been allowed time till 2020 to reach this target. It is believed that there will be severe monitoring and penalty provisions in case of non adherence to the norms.

Both the banks and the renewable energy industry have welcomed RBI’s decision. Tulsi Tanti, CMD of Suzlon Group, said:

“The notification by RBI will boost investments from the SME sector in renewable space as the finance will be available at a competitive rate as the bankers have separate allocation and priority for the sector. Further, it will help SMEs to grow and expand their manufacturing capacity in a larger way as they will become competitive because of low cost of energy for the next 25 years and achieve availability of energy for captive use. The move will help to achieve prime minister’s Make in India vision.”

Jaideep Iyer, group president with Yes Bank Ltd, added that the new norms are a boon to private sector banks like his. He said:

“We can now raise infrastructure bonds which are exempt from PSL but still use the money to lend to renewable energy. The lending can also be extended to sectors like warehousing for which there is an increase in demand. Social infrastructure is also a big sector which has many opportunities”.

Not everyone is impressed though.

Ratul Puri, chairman of Hindustan Powerprojects told the Economic Times that while the freshly announced limits are a good start, “to make a meaningful difference” it should be increased to Rs 5 billion.

India has been looking to foreign institutions to raise capital for renewable energy projects in the country – including US, Japan, France and Germany.