A $1 billion fund may soon be launched by the government in collaboration with the World Bank, and the Small Industries Development Bank of India (SIDBI).
The fund will be used to provide guarantees against defaults on loans taken to buy electric two or three-wheelers, a report in the Economic Times (ET) stated.
This is aimed at clearing the way for faster and easier financing of electric vehicles.
The entities will initially set up a $300 million "first loss risk sharing instrument. The funds would be available for all financial institutions to access as a first-loss instrument," Economic Times reported citing a person involved in the talks.
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"The instrument would act as a hedging mechanism, for banks to access in case of defaults of loans on purchase of electric vehicles. This is expected to bring down the cost of financing EVs by 10-12%," it quoted the person as saying.
Currently, the interest rate on loans to purchase electric two- and three-wheelers is 20-25%.
The Niti Aayog is the facilitating agency for the project.
State Bank of India was being considered as the programme lead, but it moved out of the partnership as banks still consider EV as a risky segment.
Banks have continued to shy away from this segment as they burnt fingers losing money on financing e-rickshaws, and other two- and three-wheelers powered with lead-acid batteries.
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