What’s Stopping Banks from Backing EVs?

Rajesh Singh, 33, had been driving an e-rickshaw in Noida since 2023. This year, he decided to purchase his own three-wheeler. At the dealer’s in Noida Sector 16, he was assured that the showroom would arrange the financing for the vehicle and take care of the documentation for processing the loan.

Why didn’t he approach a bank? “There were a lot of complications in getting the loan from a bank and arranging everything myself,” Singh said. He added. “I just submitted my bank details [to the dealer]. They took care of all the banking work to get me the loan.”

 Singh is not alone. Outlook Business reached out to four commercial three-wheeler electric vehicle (EV) dealers in Delhi NCR. Three, it turned out, had tie ups with private financing companies that helped buyers get loans. A dealer in Ghaziabad said, “When people come to us to buy an e-rickshaw or e-auto and they ask for loans, we get the entire documentation done. We have tie ups with Akasa Finance and they disburse the loans.”

Hesitant Banks 

In India, two-wheelers and three-wheelers accounted for more than 94% of EV sales in FY25, shows data compiled by the Society of Manufacturers of EVs. But information compiled by Niti Aayog on e-Amrit, the web portal for EVs, shows that loans to finance EVs, particularly two- and three-wheelers, came from 11 non-banking finance companies (NBFCs). Contrast this with loans by scheduled commercial banks (SCB): for commercial three-wheeler EVs, only Bank of India had a financing option. For commercial and personal two-wheeler EVs, a handful of SCBs such as HDFC Bank, IDFC First and State Bank of India offered some financing options.

A report prepared by investment firms LeapFrog Investments and Temasek, battery swapping startup Battery Smart and Mahindra Last Mile Mobility confirms the lower rate of EV financing for two- and three-wheelers—that Indian banks have been slow to understand the segment, with 65% of EV financing coming from non-bank lenders.

Roadblocks for Buyers

But funding is hardly a concern when it comes to buying an electric four-wheeler. Outlook Business spoke with buyers of personal and commercial four-wheeler EVs who said they had not faced a challenge in getting a bank loan to finance the purchase. In fact, ICICI Bank, HDFC Bank and Axis Bank have 100% loans for four-wheeler EVs but not for two- and three-wheelers.

“Banks are comfortable in making finance for working capital. Also, there could be some doubts in terms of resale value of EVs,” said an official of the Indian Banking Association, who did not wish to be named.  

There are two major factors that could be attributed to the lower participation of banks in financing these EVS. First, most two- and three-wheeler buyers come from economically weaker sections or lack a credit history, which makes it difficult for them to get direct loans from banks. Second, EV financing is not priority sector lending, which could discourage banks from actively pursuing it.  

“A large section of our borrowers (EV buyers of two- and three-wheelers) are from Tier-II and III cities and they are from a comparatively economically backward section. Most of them don’t have a credit history. Without any credit history, it becomes difficult for them to get finances from banks,” said Sameer Aggarwal, founder of Revfin, an NBFC that focuses on EV financing.

There is usually a minimum margin money of money involved that is paid by the customer in case of commercial electric vehicle loan, so that the customer also has some skin in the game. "We also focus on the quality of product that he has identified and the kind of raw materials that the manufacturer uses. That’s why we have partnered only with select manufacturers, so that our customers get quality products that are sustainable in the long term for him," said Shalya Gupta, CEO, Credifin Limited, an EV financer.

 A Small Industries Development Bank of India (Sidbi) and Niti Aayog report, De-Risking Lending for a Brisk EV Uptake, makes a similar statement. “Bankers avoid lending to three-wheelers (e-rickshaws, auto-rickshaws) due to the high-risk profile of borrowers”, it states. The report, released in March 2024, however, added that “Bankers allocating a share of funding to electric cargo three-wheelers is considered low risk because drivers have a more stable earning potential.”

Finance Hiccup  

The recent past has not been smooth. The two-wheeler market has seen an increase in annual gross non-performing assets (NPAs) from 7.7% to 11.8% between FY20 and FY22, brought on partly by Covid-19. The banking sector, which struggled with NPAs during and right after Covid-19, remains hesitant to finance two- or three-wheelers. The Sidbi report highlights that the lack of schemes such as Pradhan Mantri MUDRA Yojana (PMMY) that can help cover defaults on two- and three-wheeler loans is another stumbling block and prevents financiers from lending to this segment or charge higher interest rates. 

Read : Indian Banks Cannot Figure Out What’s Green And What’s Not

Another challenge is the lack of resale value of EVs in India. “The resale market for EVs, though it has improved over the last few years, is still evolving and EVs continue to lag the resale value of correspondingly-aged conventional vehicles. Finding resale value of the battery is also difficult in the absence of an established recycling market and lack of certifications to measure used battery health. This also hampers establishing an EV resale market,” said Sachin Sachdeva, vice president, sector head, financial sector ratings, ICRA.  

Several incidents of EV battery explosions and fires in India have also compelled banks to take a back seat. SIDBI adds, “EVs have a higher product risk as the technology is nascent and battery warranty conditions are evolving compared with ICE [internal combustion engine] vehicles.”  

According to some lenders, this category is very different from the normal lending segment, due to low ticket size of the loans, low tenure of the loans and often zero credit history.

Despite such hesitations, some banks have entered into a co-lending system with various NBFCs for EV financing. For example, Tata Motors and State Bank of India signed a memorandum of understanding in 2023 to offer 90% funding of the on-road price of the vehicle and loan tenure up to six years. Similarly, Ather Energy is offering up to 100% on-road financing through partnerships with IDFC First Bank, HDFC Bank, ICICI Bank, Bajaj Finance and Axis Bank.  

According to industry experts, banks are still trying to figure out ways to increase EV financing. And once EV penetration increases, resale value will go up, as will higher participation by banks.

 “EV financing is currently not eligible for classification as priority sector lending and such a classification can potentially improve the penetration of financing in EVs. Also, as the resale market for EVs gets more developed, lenders could consider higher LTVs [loan-to-value] for such EVs, thereby increasing the penetration of financing. Increased adoption by customers would also aid in showcasing the product and technology performance, thereby lowering the risk of unknowns,” added Sachdeva.