India’s top banks and non-banking financial companies (NBFCs) are entering the electric vehicle (EV) financing business, especially the two-wheeler segment as the price of EVs is set to soar in the coming days coupled with a rise in demand.
Ola Electric, India's largest electric vehicle company, has partnered with Shriram City Union Finance. Similarly, Ather Energy is also offering up to 100 percent on-road financing through partnerships with IDFC First Bank, HDFC Bank, ICICI Bank, Bajaj Finance Ltd, Axis Bank, Hero FinCorp, and Cholamandalam Finance.
Last week, Hero Electric also announced signing a strategic collaboration with IDFC FIRST Bank to offer easy and affordable finance options to its customers.
“EVs are now starting to have similar or the volumes are comparable to internal combustion engine (ICE) vehicles and due to that many banks are NBFCs want to lend to this segment, which was untouched so far,” said Tarun Mehta, cofounder and chief executive of Ather Energy.
Banks and NBFCs are also keen due to the increase in demand.
“A lot of banks and NBFCs want to enter the space as original equipment manufacturers (OEMs) are rapidly increasing production and customers are looking for EV financing options as well,” Mehta added.
The available financing option is also contributing to increased adoption in smaller cities, said Sohinder Gill, CEO of Hero Electric.
“The partnerships aim to enhance accessibility and affordability of electric vehicles for a wider audience, thereby accelerating the adoption of clean and sustainable transportation solutions in the country,” Gill said.
EV prices set to soar
In May 2023, the Ministry of Heavy Industries announced a reduction in the FAME II subsidy for electric two-wheelers. The subsidy per kilowatt-hour (kWh) was reduced from Rs 15,000 to Rs 10,000, and the cap on the maximum subsidy on the vehicle's ex-factory price was reduced from 40 percent to 15 percent.
Experts believe this is likely to increase the EV two-wheeler prices for end customers.
“We strongly believe that subsidies cannot be there forever, however, this is too early for the EV industry. This is also a reason why many are looking for financing options,” said an executive from an EV manufacturer who requested anonymity to Moneycontrol.
“For the first two months after May, prices were going up, however, many are now making sure that cheaper models are introduced for customers. EV financing also plays a key role here,” said Ather’s Mehta.
The business is also lucrative to bankers.
“Initially the banks were partnering with a lot of EV financing startups to understand the business. However, now the adoption is going up, the Kms clocked by individuals are substantial and it is attractive from a business point of view as well,” said a cofounder of an NBFC providing EV finance.
Currently, the EMIs for a six-month loan start from around Rs 8,000 per month, with interest rates starting at 8-10 percent.
“The interest rates and EMIs may be slightly higher as compared to ICE vehicles but over time, as we expect to see even more adoption that is also likely to come down,” the NBFC cofounder quoted above said.
There are multiple startups that offer EV financing. Delhi-headquartered RevFin, Mufin Finance, and Akasa Finance, as well as new-age players like Vidyut and Ohm Mobility, offer EV financing options in collaboration with EV OEMs.
Increased adoption in Tier III and IV cities
Multiple EV makers said that the demand for financing options also comes from tier III and IV cities.
“As Ola expands its retail footprint beyond Tier I cities, Ola is focused on making financing solutions easy and accessible for all. With the partnership with Shriram City Union, Ola is aiming to break financial barriers and make electric mobility a reality for customers,” said Anshul Khandelwal, chief revenue and marketing officer of Ola Electric.
Data sourced from the Electric Mobility Financiers Association of India (EMFAI) indicates that in the past year, the number of EV finance participants has risen from four to thirteen. Overall disbursements have surged by 50 percent, reaching Rs 1,000 crore, with investments including debt and equity ranging between Rs 1,000 crore and Rs 2,000 crore.
“Even rural areas’ adoption is increasing, what was hampering the growth was the non-availability of finance options. When we analysed what’s the most-asked-for feature in dealerships in rural areas, it was the loan facility,” said an EV maker on the condition of anonymity.
Initial hiccups
While the increase in EV finance options will likely help customers adopt EVs and green mobility options, bankers say that the high-interest rate could be challenging, especially in the initial phases.
“This is a newer segment for banks, if one sees, large, traditional, state-owned banks have still not adopted this. Banks that offer EV financing are new-age, startup-friendly banks. Only when many players come into the segment the interest rates and EMIs will come down,” said an NBFC cofounder.
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