EV loans to be affordable, India in discussion with World Bank

India’s government and the World Bank are in talks to introduce a risk-sharing mechanism to compensate banks giving loans for electric vehicle purchases, an official said, as the country seeks to decarbonize the transport sector.

The risk instrument will help banks hedge against loan defaults and cut the cost of financing EVs, India’s G20 sherpa Amitabh Kant said at the sidelines of an industry event in New Delhi. Kant was CEO of government thinktank NITI Aayog until June this year, spearheading state policy decisions across the economy.

The switch to clean transport in the South Asian nation is slower than the US and China in part due to the sluggish adoption of battery-powered vehicles. The high cost of these vehicles and insufficient charging stations are a major barrier with BloombergNEF saying that by 2040, 53% of new automobile sales in India will be electric, well behind China with 77%.

Banks in India have been reluctant to give loans for EV purchases at a time when the cost of insuring these vehicles is high and the resale market is remains small, said Kant, who was recently appointed India’s main negotiator when it becomes the chair for the Group of 20 countries in December.

The World Bank will set up a $1 billion fund with an Indian bank that will be made available to all financial institutions, according to a senior NITI Aayog official working on the project. The fund will provide first-loss guarantees to lenders in case of loan defaults, said the official who declined to be named as discussions are still private.

An India spokesperson for the World Bank didn’t respond to calls and an email seeking comment.

India has been pushing to decarbonize its transport sector, which accounts for 13.5% of the country’s total emissions, as it looks to achieve its goal of becoming net carbon zero by 2070. The government expects investments in the Indian EV industry to more than triple to $20 billion by 2030 from $6 billion in 2021.

The government is also working on a battery-swapping program to expedite adoption of electric scooters and rickshaws, which are growing faster than the four-wheeler segment.