RBI Increases Priority Sector Lending Cap to Renewables by Two-Fold

The lending limit for individual rooftop solar systems remains the same at ₹1 million per borrower


The Reserve Bank of India (RBI) has come out with the details for the priority sector lending. The apex bank has increased the lending limit for the renewable sector. The revised guidelines have taken into account the views of all the stakeholders.

As per the revised guidelines issued by the bank, the limit of bank loans has been increased to ₹300 million (~$4.09 million) to borrowers who are generators of solar, biomass, wind, and micro-hydel power. Public utilities based on non-conventional power sources like street lighting systems and remote village electrification, among others, will also be eligible for priority sector classification. For individual household rooftop systems, the limit remains the same at ₹1 million (~$13,363) per borrower.

Under the previous priority sector lending, a limit of ₹150 million (~$2.01 million) was set for large-scale renewable projects like solar and wind, biomass and mini-hydel projects, and non-conventional energy-based public utilities like street lighting and remote village.

With the priority sector lending limit raised, there will be more liquidity infusion into the sector, which could also bring down the interest rates.

Earlier this month, the bank had introduced several policy measures to enhance liquidity support for the financial market and other stakeholders to ease the financial stress caused by the COVID-19 pandemic.

According to the new directions, loans up to ₹500 million (~$6.8 million) will be provided to startups engaged in activities other than agriculture and which are not in the category of micro, small, and medium enterprises (MSMEs).

In May this year, RBI had announced the third round of monetary measures to boost the economy amid the lockdown caused by the COVID-19 pandemic. The bank had announced a reduction in the policy repo rate under the liquidity adjustment facility (LAF) by 40 basis points (bps) to 4% from 4.40%. The marginal standing facility (MSF) rate and the bank rate are reduced to 4.25% from 4.65%. These rates were kept status quo in the second round of monetary measures announced by RBI in April.

Previously, Mercom had reported about the need for the RBI to decouple the lending to renewables from the power sector and provide the much-needed boost to the renewable sector.

Union Power Minister R.K. Singh had also asked the banks and financial institutions to categorize renewable energy as a separate sector, different from the power sector, so that funds can easily flow to renewable energy projects. So far, nothing has come of it yet.