The paucity of bank credit for renewable energy projects has made the sector the next growth area for non-banking financial companies such as Tata Capital, L&T Infrastructure Finance and PTC Financial Services.
The lending requirement for solar, wind and other clean energy projects is poised to increase sixfold from Rs 20,000 crore a year currently, if the government's target of adding 20 gigawatts of green power annually is to be met.
Over the past few years, wind and solar energy companies have found it hard to get banks to finance their projects as most of them have supposedly exhausted their lending cap to the power sector. Also, bank loans have turned bad because some power projects were affected by cancellation of coal blocks, scarcity of gas, absence of power purchase agreements and land acquisition hurdles. These limited the availability of bank credit for clean power projects, a gap that NBFCs now seek to fill.
India's clean energy capacity, including solar, wind, hydro and biomass, stands at 33 gigawatts. The government aims to install 170 gigawatts by 2022, entailing a fundingrequirement of $200 billion.
Tata Cleantech, the clean-energy lending arm of Tata Capital, is looking to become an infrastructure finance company so that it can source foreign funds for lending to renewable power projects.
"Our exposure at present is Rs 1,000 crore to the renewable sector. In future, we want to play a significant role and want to get involved in setting up of 2 gigawatts of clean energy in 3-5 years.
This could mean 30% of Tata Capital's total infrastructure lending," Tata Cleantech CEO Arijit Bhattacharya told ET. L&T Infrastructure Finance is considering issuing bonds and is awaiting the government's green signal to allow infrastructure debt finance to fund clean energy projects.
"This has been the most attractive area in last 2-3 years, with 50% of our energy exposure to clean energy. In the next one year, 40% of our total lending will be to this sector. Ours is a Rs 20,000-crore-plus balance sheet and this is going to be a big opportunity for us," said L&T Infrastructure Finance CEO G Krishnamurthy.
Although NBFCs charge a higher interest rate on loans than banks, clean energy project developers may still find them an attractive option because they offer faster financial closure.
"Banks take a few months to close a project. But we take only 15 days to communicate to a project developer whether we are going ahead or not and we're able to close it within 30-45 days," said PTC Financial Services MD & CEO RM Malla.
PTC Financial will have almost 50% exposure to renewables at Rs 2,000 crore by the end of this financial year, which the company plans to increase.
"We can arrange funds for, say, a 50-200 megawatt project. But that's not possible for a 1 gigawatt project. Only reason we go to NBFCs is that they are quicker.
However, we need more sources of funding in addition to these," said Vikram Kailas, MD of Mytrah Energy, a wind-energy company. Experts say NBFCs should adapt by structuring loans for longer periods and lowering interest rates.