By Nehal Gupta, Founder and Managing Director, Accelerated Money For U
India is not only talking about sustainable transport. Today, the country is operationalising it as part of national development planning. The government has set a definitive goal, and that is to fully electrify 30 per cent of private cars, 70 per cent of commercial cars, 40 per cent of buses and 80 per cent of two and three-wheelers by 2030. This aim goes beyond simply reducing fossil fuel consumption; it is a deliberate attempt to dramatically curb urban pollution and achieve true energy self-sufficiency.
What is happening with the Indian electric vehicle (EV) market? It is not just growing but, rather, skyrocketing. Two-wheelers are leading the charge in electrification with a share of almost 60 per cent of total EV sales. In the fiscal year 2024-25, sales of high-speed electric two-wheelers exceeded 2 million units. Commercial transport continues to see rapid electrification. Business in high-value segments is driven heavily by final users and small business operators, many of whom are in dire need of flexible micro-financing options due to a lack of formal credit histories. These strict criteria traditional banks rely on excluding them from serving this large, underserved demographic. Innovative credit models tailored to these segments are vital to achieving the EV dream in India.
Regulatory framework enhancing the EV ecosystem
The EV ecosystem in India is greatly supported by robust and strategically designed policies by the government. The Ministry of Heavy Industries has taken the lead in executing the ‘Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) India Programme’. FAME is instrumental in dispersing financial subsidies to both consumers and manufacturers, which has lowered the purchase price and increased the sale of EVs, especially in the 2- and 3-wheeler segments. FAME-II has a robust allocation of Rs 100 billion.
The ambition continues beyond that. FAME is complemented by the Production Linked Incentive (PLI) scheme, which aim to nurture the domestic manufacturing capabilities across the entire EV ecosystem. The Advanced Chemistry Cell (ACC) Battery PLI Scheme, with an outlay of approximately $2.5 billion, is aimed at creating ACC production capacity in the country along with an additional high-performing cells. It is crucial to diminish reliance on imported cells and fortify the domestic battery value chain. The Auto & Auto Component PLI Scheme, with a budget of Rs 25.9 billion, aims to subsidise the production of Advanced Automotive Technology, encompassing battery EVs and hydrogen fuel cell vehicles across all categories. The objectives are clear: to remove cost disadvantages, establish economies of scale, create jobs, and build a robust supply chain.
The PM Electric Drive Revolution in Innovative Vehicle Enhancement initiative has a two-year timeline, with an investment of Rs 109 billion aimed at fostering green mobility and enhancing the EV ecosystem, thereby advancing the green economy. Initiatives such as the Battery Waste Management Rules 2022, which emphasise the reuse and recycling of ACC batteries, exemplify the government’s vision for EVs by addressing the entire lifecycle of the vehicle. Tamil Nadu spearheads the initiative by providing the scrappage and recycling infrastructure for advanced battery servicing. The integration of these policies aims at establishing a closed-loop EV economy, enabling self-sufficiency in the total value chain, advanced manufacturing and assembly, robust charging networks, and responsible recycling post-consumer phase, which significantly expands the scope of financing required beyond just vehicle acquisition.
Hurdles confronting traditional financial institutions
Generally, banks have been hesitant to embrace the emerging EV market, despite the significant opportunities it presents. Their reluctance is influenced by more than just outdated product concerns such as the risk of battery deterioration, the uncertain market for resale values, the unfamiliar credit risks associated with the new technology, and the uncharted territory of rapidly evolving technology. Consequently, due to this apprehension, banks usually provide limited credit options to consumers. These options are accompanied by numerous disadvantages. For EVs, loan-to-value ratios are more conservative, interest rates are higher, and loan terms are a few months shorter in comparison to internal combustion engine vehicles. These onerous conditions, combined with the already elevated initial cost of EVs, significantly impede their adoption.
NBFCs and EVs: Primary catalysts of India’s financing evolution
The influence of non-banking financial companies (NBFCs) is becoming increasingly crucial for the evolving EV sector in India. Their operational framework is more beneficial compared to that of conventional banks, allowing them to effectively address the new and changing financial demands of the EV ecosystem.
NBFCs offer advantages due to their more flexible eligibility criteria. This is particularly helpful for groups such as entrepreneurs, graduates, and small enterprises that may have lower credit ratings or less formally documented business histories. Loan eligibility is now more frequently assessed based on actual cash flow, rather than rigid credit score assessments. This is especially important considering that most commercial EV borrowers may not have a formally documented credit history. NBFCs are leaders in the industry with their 1-3 day loan approval and disbursal timeframe. Banks are considerably slower, often taking 7-15 days or more. With fewer administrative burdens on borrowers through streamlined and low-documentation processes, loan application and processing times are significantly sped up.
Through tailored loan products, NBFCs also offer tiered payment systems that allow borrowers to schedule repayments with their cash flow patterns. NBFCs are fostering EV adoption in lower-tier cities, which is critical to broadening the market and fostering inclusive growth. This commitment, coupled with the willingness to serve the underserved populations, allows NBFCs to widen EV financing significantly, propelling India’s ambitious goals for mass adoption.
Developed financial products by NBFCs and FinTechs
Through the pandemic and recovery stages, NBFCs and FinTechs have worked together to create tailored economic solutions to address the specific financial hurdles associated with EVs. A number of companies understand that the battery comprises approximately 30-40 per cent of the EV cost as “prepaid fuel”. This understanding enables innovation in the separation of chassis and battery financing models. They charge fixed EMIs on the vehicle and a novel charge-per-km fee for the battery, converting a large capital expenditure to an operating expenditure. Lenders are also providing flexible EMIs for drive-owners that are aligned with the actual vehicle usage. This enhances the financial viability for the commercial operators, and debt repayment becomes less stressful. Through first loss default guarantees (FLDGs), startups share the NBFCs’ credit risk for customers with no credit history. In this model, the startup mitigates a portion of the defaults, which lowers the risk for the NBFC and increases credit supply.
NBFCs, along with their FinTech partners, are introducing and refining financial products for wider EV adoption and ownership in the region. Specifically, these are targeted at key commercial operators in the three-wheeler and two-wheeler segments.
The strategic importance of NBFCs in facilitating India’s EV transition
The revolution of EVs in India is critical and is driven by undisputed focus and strong government support. Achieving a sustainable mobility future is still a long journey and is deeply entwined with comprehensive financial support for putative EV ecosystems not limited to vehicles. NBFCs are critical to this ecosystem as they are decisively transforming the EV landscape. Their innovative approaches like battery-as-a-service and FLDG partnerships, as well as their focus to serve neglected segments, are enhancing EV adoption and the related infrastructure development. These factors, combined with sound government initiatives and strategic partnerships in the industry, place NBFCs in a good position to secure the significant funding needed to drive India’s green transition.
