The Government of India’s US$ 1 billion tripartite partnership is slated to halve the costs of financing for the commercial use of two and three-wheelers.
18 Jul 2023 | 7146 Views | By Amit Vijay M
With the upfront FAME cash subsidy being rationalised, the Government of India’s US $1 billion tripartite partnership with the World Bank, the Asian Development Bank (ADB), and SIDBI, is banking on affordable financing rates for the last mile mobility to facilitate the transition to zero-emission mobility.
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With the upfront FAME cash subsidy being rationalised, the Government of India’s US $1 billion tripartite partnership with the World Bank, the Asian Development Bank (ADB), and SIDBI, is banking on affordable financing rates for the last mile mobility to facilitate the transition to zero-emission mobility.
Autocar Professional has learned that the Government of India’s US$ 1 billion tripartite partnership is slated to halve the costs of financing for the commercial use of two and three-wheelers.
According to sources, the fund will also be extended beyond two and three-wheelers to fleet passenger cars, with a reduction in costs from 18-20 percent to 8-10 percent.
The migration fund which seeks to give guarantees on loans and reduce the cost of borrowing for lending to NBFCS, is expected to go online by the end of the year.
The programme will assist OEMs of electric two- and three-wheelers impacted by the FAME II subsidy revision prospects, by giving a leg up for the last-mile deliveries business.
The scheme will also provide low-interest loans to electric vehicle ecosystem players, such as charging equipment providers and fleet operators. Fleet operators are seen as essential for the speedy adoption of EVs in India and an estimate of around 20% of the total EV sales is driven by commercial and last-mile delivery fleet operators.
According to sources, the bank will expand its ongoing pilot 'Mission EV4 ECO programme, which currently has a corpus of Rs 100–150 crore, with the objective of financing 50,000 electrical two-and three-wheeler vehicles and fleet electric passenger cars. EV4 ECO is targeting 50,000 electric vehicles to begin with, and will eventually cover the entire gamut of the EV ecosystem.
Once SIDBI receives the global funds, the bank will increase its commitment from the current Rs 10 crore ticket size for Mission EV4 ECO funding by at least 2x to 3x per industry participant, as per industry estimates.
SIDBI has empanelled Mahindra & Mahindra, Altigreen, and Euler Motors as the approved electric three-wheelers vehicles that can be financed under the EV4ECO Mission 50,000 direct lending scheme, which applies to individuals as well as fleet operators.
Pankaj Gupta, CEO and Founder of Mufin Green Finance told Autocar Professional, that once the World Bank-ADB funds arrive, “Our cost of borrowing will be reduced to 8–10%, allowing us to make larger bets on financing last-mile electric mobility, increasing our Assets under management by at least Rs 300 crore by the end of FY24.”
In response to the World Bank programme, Altigreen's Co-founder and CEO, Dr. Amitabh Saran said that global financial institutions will enable long-term support for clean mobility will "create a huge value for the last mile mobility market, as a reduction in the cost of financing will spur growth for two and three-wheelers, putting electrical commercial vehicle finance closer to the rates of passenger car financing."
When discussing the Mission4ECO programme, Saran stated that once the World Bank-backed scheme is fully operational, the government should integrate the driver-cum-owner (DCO) kind of customer into the financial banking fold. Since the SIDBI plan now requires Udyam MSME registration, many individuals have been unable to join the EV4ECO programme, due to a lack of access to such documentation, according to him.
"As an industry participant, the scheme could be linked to the individual's Aadhar card or Pan card," he noted, "which is already linked to the individual's CIBIL score."
According to Sameer Aggarwal, Co-founder and CEO of Revfin Services, the tripartite agreement between the World Bank, ADB, and SIDBI will result in a "sizable programme that will accelerate lending to empanelled loan entities like Revfin and also deliver a guarantee on the loans that we are giving to third parties."
According to Revfin, the EV4 ECO programme has frozen the qualifying criteria for OEM selection, vehicle classes that will be financed, and how those vehicles will be deployed. "They have gone to great lengths to understand all of the different types of industry players, which will make onboarding new players easier once the World Bank funds begin to come into play," he explained.
SIDBI Chairman and Managing Director Sivasubramanian Ramann stated when the pilot began last month, "NBFCs and fleet operators are an important part of SIDBI's enterprise growth strategy."
The structure of the US$ 1 billion fund
The World Bank will most likely contribute between US$ 250 and US$ 300 million by September-October this year, according to SIDBI officials, who disclosed the programme’s finance structure specifics.
Following that, ADB will contribute US$ 650 million by November-December, with SIDBI financing the remaining US$ 100 million from internal sources and its global investor pool, with implementation overseen by the Niti Aayog.
How PM Modi's visit to the US fastracked fund allocation
Narendra Modi’s visit to the United States has accelerated the process of financing clean energy funding in the country, finance ministry sources informed Autocar Professional, saying that the deal will fructify by the end of the year.
The government's current goal is to reduce the emissions intensity of its GDP by 45% by 2030 compared to 2005 levels.
Furthermore, as India assumes the G20 Presidency and the Asia-Pacific group for COP28, senior officials in the finance ministry stated that the Asian Development Bank has "an incredible opportunity to support the country's constructive climate policies, and play a key role in showcasing the country's capabilities to become a global clean manufacturing hub."
Climate Action Tracker (CAT), an independent scientific project that monitors government climate action has said that India needs to do much more to meet its targets. "The US $1 billion fund, which will become fully operational by the end of the year, will seek to course correct that," said a senior Niti Aayog advisor.
Grant Thornton Bharat, a management consulting firm that works with businesses and governments across industries and sectors, predicts that the domestic EV market will grow at a CAGR of 49% between 2022 and 2030, creating approximately 50 million direct and indirect jobs and representing a US$ 200 billion investment opportunity. The market for batteries, green hydrogen, and other sustainable technologies in India is anticipated to be worth US$ 80 billion by 2030.
Commenting on the potential of the US$ 1 billion fund, Saket Mehra, Partner and National Transformation Consulting Leader (Government, Digital, and Business) at Grant Thornton Bharat, told Autocar Professional that global institutional funds are more than happy to lend at a concessional rate to Indian financial institutions because India is playing a key role on the global stage in achieving zero emission goals.
Saket added that the flow of low-cost money flowing to India from global bilateral financial organisations is expected to rise in the near future, which will aid the government’s push towards alternative fuels and overall clean energy goals. He also claimed that the increased emphasis on charging infrastructure, business-to-business delivery, and shared mobility concepts such as e-scooter sharing and delivery, as well as commercial vehicle operators transitioning to EVs, will hasten India's decarbonisation journey.