BackCESL in talks with NBFCs to reduce interest on EV loans
This assumes significance given the higher risk associated with commercial EV financing resulting in higher interest rates to be charged from buyers. Also, with a majority of the lending done by NBFCs, there is a higher cost of capital involved which gets transferred to the buyer.
PremiumIn a concerted push for mass adoption of electric vehicles (EVs) in India, state-run Convergence Energy Services Ltd (CESL) is in talks with non banking financial companies (NBFCs) to reduce interest rates on EV loans by at-least 5 percentage points to make them affordable, according to a top company executive.
As part of this green mobility playbook, the Energy Efficiency Services Ltd’s (EESL) subsidiary is targeting those earning a livelihood through these vehicles by leveraging the concessional finance available to it, and blending it with the corpus on offer by NBFCs such as RevFin, Mufin Finance, Team Vedika, Prest Loans, Pooja Finelease Ltd, Three Wheels United and Manappuram Finance Ltd by designing an off balance sheet financial instrument. Also, CESL is in talks with Delhi government for leveraging its interest subvention scheme of up to 5% in EV purchase.
This assumes significance given the higher risk associated with commercial EV financing resulting in higher interest rates to be charged from buyers. Also, with a majority of the lending done by NBFCs, there is a higher cost of capital involved which gets transferred to the buyer.
“We are designing an off balance sheet financial instrument together with the NBFCs by leveraging the concessional capital available to us. With NBFCs rate of lending ranging from 22% to 28% , given the credit risk profile of the applicants, we plan to reduce it by at least 4 to 5 percentage points by combining our concessional capital. This will help reduce the interest rate for this large segment of population that are dependent on these two-wheeled and three-wheeled EVs to earn their livelihood," CESL chief executive officer and managing director Mahua Acharya said.
“We are working on a solution to reduce interest rate and pass on the benefit to end consumer. We are also looking at ‘co-lending’, or ‘on-lending’ —whichever model works best to achieve downstream impact on the end customer," Acharya added.
There is a growing interest from NBFCs for this joint approach.
“CESL is pooling demand and already initiated empanelment of OEM (original equipment manufacturer) for a standard product at competitive pricing. They already have a round of meeting with all NBFC who are operating in EV finance segment and we were also part of that meeting. They have not yet started any process for onboarding of NBFC for funding and no commercials for funding was discussed yet," said a Mufin Finance spokesperson.
“The full scope goes beyond that of lowering the interest rate. There is no conclusion yet about how much lower interest rates would become but the 5% you mention is in my personal opinion a minimum," added Kevin Wervenbos, chief financial officer, Three Wheels United in an emailed response.
“There are many ways in which rates can be reduced for the end buyers. The first way is by reducing the cost of capital for NBFCs. This can be done either through direct funding through debt issued at low rates or through co-lending structures where the blended interest rates will be lower," said Sameer Aggarwal, founder of RevFin.
“The other method is to introduce interest subvention, where a certain proportion of interest can be paid directly to NBFCs through government agencies. Finally, introduction of buyback guarantees and fixing of prices in the secondary market can reduce risk, reducing the need for high margins for NBFCs to cover risk," Aggarwal added in an emailed response.
Queries emailed to Team Vedika, Prest Loans, Pooja Finelease Ltd, and Manappuram Finance Ltd on late Tuesday night remained unanswered.
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