Govt sources cheap funds for green energy
Having committed to a green power target of 175 GW by 2022 at the Paris “Conference of the Parties” to reduce pollution in December 2015, the government has turned to global institutional banks to implement the promise.
India’s installed renewable power capacity is just 43GW.
The NDA government is pushing institutional banks to give cheap loans to domestic lenders, who have in turn been asked to lend to renewable power companies at low interest rates.
Close to $2 billion (Rs13,400 crore) are being transmitted to domestic banks as concessional loans from World Bank, Asian Development Bank, Brics Bank and others. The banks would not be allowed to use these funds for any other purpose.
“The ministry of new and renewable energy (MNRE) is arranging for concessional loans from institutional banks for public sector banks (PSBs). The PSBs can lend this money at the marginal cost-based lending rates (MCLR),” said Upendra Tripathy, MNRE secretary.
MCLR is the benchmark lending rate of banks. They add their margins to the MCLR to arrive at loan rates for different sectors. Banks charge higher interest rates for loans to sectors perceived as risky.
“For instance interest rate for rooftop solar projects are around 11% to 11.5% but with concessional loans this will between 9.1% to 9.3%,” a government official said.
So far, World Bank is disbursing $640 million (over Rs 4,200 crore) to State Bank of India (SBI), ADB has committed $500 million (Rs3,350 crore) to Punjab National Bank, Brics Bank is giving $250 million (almost Rs 1,700 crore) to Canara Bank and KfW Development Bank will give IREDA (Indian Renewable Energy Development Agency) $1 billion (Rs6,700 crore).
“The problem is that all these institutional banks with the exception of KfW are seeking a sovereign guarantee on the loans. The government is negotiating for a waiver,” said a source.
A sovereign guarantee implies that the Indian government will stand guarantee in case of a default. This also means an additional interest payment of 1.2% on the loan. “Any addition to the interest rate will be passed on to the borrower, so we have written to RBI to allow an interest subsidy to the sector,” Tripathy said.
Experts estimate an investment of Rs 45,000 crore from foreign and domestic sources, flowing into the renewable sector in this fiscal. The availability of low-cost capital and finance will boost this investment.
“Given the mounting non-performing assets (NPA) of banks, they would be hesitant in lending to the power sector. But the renewable sector has not created any N PA sand it is also a priority sectorso lending won’ t be a problem ,” said Nirupama Soundarajan, economist and senior fellow at Pahle India Foundation.