Residential Rooftop Solar Loans: All You Need to Know

From banks, NBFCs, to personal loans and credit cards, various financing options are available

December 2, 2020


In the fourth article of our series covering all you need to know about rooftop solar systems, we focus on ways to finance your residential rooftop system. This write-up will help you understand the different ways to finance your rooftop installations through banks or financial institutions, the processes and the documentation involved, rates of interest applicable, and the collateral.

Check out the first and second of the series.

The System Cost

The third article in the series had shed light on the cost of the rooftop solar system, which depends on the price of the modules and inverters used.

The cost of a 1 kW rooftop solar system ranges from ₹45,000 (~$612) to ₹85,000 (~$1,156), excluding the batteries’ cost. A 5 kW system could cost in the range of ₹225,000 (~$3,061) to ₹425,000 (~$5,782), excluding GST.

Financing Through Banks and NBFCs

The first line of financing is banks, which offer loans under top-up plans such as home loans and renovation loans. For this scenario, we are considering that the capital is invested by the consumers who own the rooftop solar systems on their homes.

Some banks specifically finance rooftop installations, albeit rates of interest vary significantly from one bank to another, starting anywhere from 10% to 18%, depending on the borrower’s source of income and risk profile. The maximum tenure for the loan again varies from bank to bank ranging from 1-5 years up to 20 years.

Even the securitization of the loan varies from one lender to another. Canara Bank will mortgage the residential property and hypothecate the solar equipment. Meanwhile, YES Bank, which has a tie-up with Luminous, can issue an unsecured loan.

rooftop solar loans by bank_ver

Mercom spoke to Priyanka Mohan, Director of Kor Energy, who said, “There are several banks and non-banking financial institutions (NBFCs) where we line up our clients. However, we prefer that our customer’s existing banks take up the funding since they already have a rapport. We then send the detailed project report to the bank and ask our client to source the loan from them. If there are issues with the banks, we can always approach NBFCs and other institutions that offer solar funding.”

NBFCs finance solar installations on residential properties. However, unlike banks, the interest rates are quite steep, ranging from 13% to 24%, though most don’t demand collateral.

Rooftop by NBFC banking chart_ver

Retailer Option

Meanwhile, companies like Luminous, which has tie-ups with YES Bank and IDBI, also finance their end customers through their dealer networks.

The national sales head, solar, and assistant vice president at Luminous India, Sanjay KVS, spoke to Mercom about this, “Around 98% of our business comes from our distribution network, and we empower our retailer so that they can get us good business. Typically, our dealers are battery and inverter shops. Luminous makes a deal with the larger financial institutions and shares the offers with them. The commercial dues and charges are covered by Luminous so that the customer and the retailer do not have to pay them.”

Customers can also pay Equated Monthly Installment (EMI) through credit cards as they do with other consumer durables. These options are only meant for the components, where the customer comes to the counter, buys the battery/inverter/panel, swipes his credit card, and then pays the EMI later. Sanjay added that Luminous has an agreement with Pine Labs – an Indian merchant platform that provides financing and last-mile retail transaction technology.

As for customers who want full-fledged installations, Sanjay said, “We tie-up with financial institutions such as IDBI and YES Bank, we don’t offer direct financing. The institutions will assess the creditworthiness, the project size, and, based on that, the loan is approved and disbursed.”

Installers Vouch for Alternative Means of Funding

When Mercom spoke with various residential rooftop installers, their responses showed clear disdain for bank finance. According to some installers, it makes more sense to opt for a consumer durable loan or a personal loan instead of going for a home loan top-up or NBFC financing.

Sushil Sarawagi, Director of Kor Energy, said, “There are certain specialized products which the banks have floated for residential rooftop solar. The RBI has instructed banks and NBFCs to include rooftop installations under home loans. But the issue is that under home loans or home improvement loans, the customer has to mortgage their property for ₹500,000-₹1 million (~$6,746-~$13,493). This becomes a bone of contention for the customers.”

He further added, “Although we refer our clients to banks, they are not keen on bank financing as they find the whole documentation and mortgage process cumbersome. Our customers are seeking easy finance options similar to consumer durable loans. Through such options, they secure finance for a year or so without significant documentation or any mortgage.”

Arshi Chadha, COO of Sunson Energy, raised similar sentiments and stated that it’s more feasible to finance residential properties in a cluster (such as housing societies) instead of funding one residential property. It ensures that payments keep flowing.

“We are experimenting with a new financing model on a pilot basis where we are approaching clients whom we know will stay with us in the long-term, and we take 50% of the payment from them upfront during the installation phase. The remaining 50% would be under the EMI option,” Arshi told Mercom.

Arshi added that although Sunson works on securing loans, the deals are quite expensive. “The rates are high as 16% whether our clients approach banks or NBFCs, and it makes more sense to go for personal loans. I have gone to every bank’s head office, from Bank of Baroda to SBI. Banks like SBI will only finance rooftop installations as a top-up loan. One of my clients owns a 50-year-old home worth ₹100 million (~$1.3 million); why would they give it as collateral for a ₹1million (~$13,493) loan. The ideal way to finance rooftop installations is through loans with zero collateral.”

In summation, there are plenty of choices for the end consumer to finance their rooftop solar installation – from conventional mortgage loans to ‘no security’ personal loans and even over the counter credit card payment options. It boils down to being aware of all the available options to make the right financing choice.

Contact us by filling out this form if you are planning to install a rooftop solar system for your home.

Rahul is a staff reporter at Mercom India. Before entering the world of renewables, Rahul was head of the Gujarat bureau for The Quint. He has also worked for DNA Ahmedabad and Ahmedabad Mirror. Hailing from a banking and finance background, Rahul has also worked for JP Morgan Chase and State Bank of India. More articles from Rahul Nair.