Reserve Bank Considers Priority Sector Status for Solar Panel Loans

Banks and Ministry of Renewable Energy Propose Key Changes

The Reserve Bank of India is currently evaluating a proposal put forth by banks to categorize loans extended to solar panel manufacturers under the priority sector lending framework. A decision on this matter is anticipated within the next two to three months, reports ET citing sources familiar with the ongoing discussions.

In recent deliberations involving various stakeholders, two key recommendations have emerged. Banks have advocated for the inclusion of solar panel manufacturers within the priority sector, while the Ministry of Renewable Energy has made a compelling case for adjustments to the production-linked incentive (PLI) scheme specific to this sector. An official, speaking with the publication, confirmed these developments.

Over the past two months, officials from the Ministries of Finance and Renewable Energy, along with representatives from the banking sector, have convened multiple meetings to address financing-related challenges encountered by solar photovoltaic manufacturers. Subsequently, these recommendations have been formally conveyed by the banking sector.

Solar industry associations have emphasized the detrimental impact of duty-free imports from Southeast Asian nations under existing free trade agreements (FTAs) on domestic manufacturers. A bank executive disclosed that the Finance Ministry has solicited input from lenders to assist in formulating a policy aimed at facilitating financing for the solar sector.

This proposal to incorporate solar panel manufacturing into priority sector lending and PLI schemes aligns with discussions involving association members and representatives from the Ministry of Renewable Energy.

Previously, solar industry associations raised concerns about the unanticipated persistence of solar exports, suggesting that Chinese manufacturers may have relocated their operations to countries covered by these FTAs and continued exporting from these new bases. They presented data indicating a substantial 48% increase in solar imports from nations with FTAs in the past 2-3 months.

A report by the energy-focused think-tank Ember revealed a notable shift in solar module imports from China, which decreased by nearly 80%, equating to a $2 billion reduction in value during the first half of 2023. This decline coincided with the imposition of tariffs and India’s strategic pivot toward bolstering domestic manufacturing capacity. India’s domestic solar module production capabilities have shown marked progress, as highlighted in the report.