Govt eyes sub-target for renewable energy under priority sector lending

The ministry of new and renewable energy (MNRE) is preparing a recommendation to the finance ministry carve out a sub-target under priority sector lending (PSL) for renewable energy projects, two people aware of the development said.

Priority sector lending rules require banks to allocate a specific portion of their loans to sectors such as agriculture and education that might not otherwise receive timely credit. While renewable energy is among the priority sectors, the proposal aims to ensure guaranteed lending to the sector.

Currently, banks must allocate 40% of their adjusted net banking credit or their credit equivalent amount of off-balance sheet exposure (CEOBSE), whichever is higher, to PSL, and sub-targets have been prescribed only for agriculture (18%), micro enterprises (7.5%), and loans for economically weaker sections (12%).

Now, with the need for increased financing for renewable energy at competitive rates, the energy ministry is weighing a sub-target for renewable energy projects, the people cited above said. The government has set ambitious targets of achieving 500 GW of non-fossil-fuel capacity by 2030 and net-zero emissions by 2070.

Lost in the crowd

Data from SBI Research showed that bank loans to the renewable energy sector under PSL stood at ₹7,558 crore in the first 10 months of FY25 (April 2024 to January 2025). They accounted for just 8% of the total value of bank loans for the renewable energy sector over this period, and just over 1% of the ₹6.64 trillion in loans for the overall power sector in that time.

“Financing from banks needs to gain pace. Although renewable energy is covered under priority sector lending, credit through this window is yet to pick up as there are several sectors under PSL. Either you get almost all of the funds under PSL for renewables, or you don’t get anything at all. So, there is a consideration to propose a sub-target or mandate for renewables under PSL,” said one of the people mentioned above.

Another person aware of the development said if the proposal took concrete shape and renewables got a separate mandate, sub-sectors such as solar, wind green hydrogen and hybrid projects could be explored.

Queries sent to the union ministries of new and renewable energy and finance were unanswered till press time.

Since renewable energy was included under PSL in 2015, several amendments have been made to boost liquidity for the sector. In 2015, PSL offered loans up to ₹15 crore for things like solar-based power generators, biomass-based power generators, and micro-hydel plants. In 2020 this was raised to ₹30 crore per borrower, and in March 2025 it was raised to ₹35 crore per borrower with effect from 1 April 2025. The government broadened the criteria for loans to be classified under ‘renewable energy’ in March.

Why bank financing lags

Although equity investments in renewable energy have gained pace over the years, bank financing has not grown in line with requirements, sector experts said. In August 2024, Union minister for new and renewable energy Pralhad Joshi said India’s renewable-energy sector had received investments of about ₹7 trillion between FY14 and FY23.

Gaurav Moda, partner and leader for energy at EY-Parthenon India, said, “Given long-term returns in renewable energy projects are robust, there has been enough interest for equity investment by large firms and global investors. However, banks also look more for near-mid term returns to recoup money, hence bank credit still has potential to grow more compared to the current levels. Given the need to reduce import dependence of India’s energy requirements as well as faster movement to net zero ambitions, additional efforts to boost investments and bank credit into renewables will go a long way.”

Subrahmanyam Pulipaka, CEO of National Solar Energy Federation of India, said, “We need to increase the velocity of funding in renewable energy projects. The key is to get funds at affordable rates and DRE (distributed renewable energy) is an important focus area.” He added that progress on the green taxonomy and other policy measures would help the sector meet the 2030 target. DRE refers to electricity generated from clean sources at the point of consumption, rather than large, centralised plants. It may serve a single structure such as a home, business or institution, or it may be part of a microgrid, but is not connected to the national or regional grid.

Bankers disagree

Bankers, however suggested that loans for renewable energy projects have been increasing and a separate sub-target under PSL may not be required.

“I don’t think there is any need for a special carve-out that specifies what percentage of bank credit goes to renewable energy projects under the priority sector norms. Lenders are already giving credit to these sectors. In fact, a majority of the new projects that come to us for finance are from the renewable energy sector, showing that there is no reluctance from banks,” said a banker who did not wish to be named.

CS Setty, chairman of State Bank of India (SBI), told analysts on 8 August that the bank was seeing a good number of enquiries on infrastructure projects. “In fact, other than simple renewable energy like solar and wind, we are also seeing green hydrogen and many other new emerging areas…we are looking at those opportunities, too,” he said.

Financing obligation

The energy ministry has already suggested that banks simplify financing for renewable energy projects, particularly rooftop solar panels, and called for the introduction of a renewable energy financing obligation to ensure dedicated funding for the sector, similar to renewable purchase obligations (RPO) for electricity distribution companies.

At a workshop on mobilising finance for renewable energy in February, minister Pralhad Joshi said India secured commitments worth ₹34.5 trillion at the global renewable energy summit in Gandhinagar last year. Calling for a national movement in renewable energy financing, he urged financial institutions to streamline lending processes, ease compliance burdens, and adopt a more supportive approach to financing clean energy projects.

A Deloitte report in July said India would have to add 300 GW of renewable energy capacity by 2030 to achieve its 500 GW target. This, it said, would require around $200-250 billion of investments by then, covering areas such as advanced manufacturing, grid integration, and system expansion. It would also need support in the form of energy storage infrastructure, which would require another $250-300 billion of capex by FY30, the report added.