For households, loan limit is Rs 10 lakh per borrower

The RBI recently revised its priority sector lending (PSL) guidelines. Now medium enterprises, social infrastructure and renewable energy (RE) will form part of priority sector, in addition to the existing categories. This has brought excitement to the stake-holders. The central bank's move basically means that banks are now mandated to provide a percentage of their annual adjusted net bank credit (ANBC) or the credit equivalent amount of off-balance sheet exposure, whichever is higher, to RE project developers seeking finance.

Bank loans with a limit of Rs15 crore (approx $2.5 million) will be made available for RE power generation (solar, wind, biomass, and micro-hydro) and for non-conventional energy-based public utilities such as street lighting systems and remote village electrification. For individual households, the loan limit will be Rs10 lakh per borrower. Various policy think-tanks, research institutes and industry representatives have been lobbying for this move and finally the government has acceded.


How will the solar power sector be impacted with its inclusion in the PSL framework?

To begin with, analysis of the Rs 15-crore limit needs to be highlighted. Today, grid-connected solar PV plants cost around Rs 7 crore/MW. Considering a standard debt-equity ratio range of 3:1-4:1, developers with plans to install around 2.5 MW now have easy access to finance.


Smaller centralised distributed generating units (<5 MW) are easy to incorporate into the existing grid infrastructure without any of the  aforementioned issues. The RBI move will allow SMEs to use solar for captive consumption purposes now that they can access finance easily. Such strategic niche management can be extended to the off-grid space to enable rural electrification using decentralised solar plants (<500 kW) with micro-grids. A differential rate of interest (DRI) scheme can be introduced. The other aspect is with respect to individual households. 


The Rs 10 lakh limit here means that the government is encouraging urban households to adopt RTPV (rooftop photo voltaic) systems with or without storage using easily accessible loans from banks. Today RTPV costs around Rs 92,000/kW and Rs 70,000/kW (with and without two hours of lead-acid battery storage). Research has shown that the largest possible grid-connected RTPV system for a domestic consumer in Bengaluru (without battery backup and meeting 60 per cent of the annual electricity demand of the household with solar) is 18.5 kW with an initial investment of Rs 13 lakh.


Assuming a standard debt-equity ratio of 3:1, the revised PSL guidelines make it possible for this consumer to instantaneously get a loan for a RTPV system. Keeping the ambitious 40 GW RTPV target (by 2022) in mind, the government has initiated this progressive Rs 10 lakh move. Hopefully, the state utilities will find innovative complimentary tariff mechanisms which will allow the RTPV market space to grow rapidly in the near future.


Most representatives of the renewable energy industry are quite excited by RBI's move and expect that the Rs 15-crore limit will be increased in the near future to maintain an aggressive growth rate in this environment-friendly industry in India. India has hiked its solar power capacity target by five times and seeks to install 100 GW capacity by 2022. The installed solar power capacity in India has crossed 3 GW mark, according to Mercom Capital Group that tracks renewable energy developments in India.


By Saptak Ghosh