RBI may consider priority sector status to green hydrogen projects

The Reserve Bank of India (RBI) is likely to consider including loans taken up for the green hydrogen projects under priority sector lending, said a government official on the condition of anonymity.

The Department of Financial Services on Friday held a meeting, seeking suggestions for easing of financing provisions for the projects being taken up under the National Green Hydrogen Financing. Apart from finance ministry officials, the meeting was attended by officials from the RBI and renewable ministry and environment ministry.

“The discussions are also looking at aspects such as interest subvention scheme and subsidy for the sector,” he added.

The official said there was a need for an ecosystem before banks start financing these projects which would be created by deliberations involving various stakeholders such as bankers, NITI Aayog, and industry bodies.

“The challenge for banks would be arriving at the risks involved with the projects, gestation period and consensus on per unit cost with the borrowers. These projects are a costly affair and banks would be able to finance these projects when they have viability and good cash-flow,” he added.

There were also proposals in the meeting to include the Asian Development Bank (ADB) in the consultation process as they have the experience in financing green projects in several countries. 

An RBI official told Business Standard that the proposal is at a preliminary stage of discussion. 

At present, there are eight sectors that fall under the priority sector mechanism. These include agriculture, MSMEs, export credit, housing, education, renewables, and social infrastructure sectors.

Currently, domestic commercial banks (excluding regional rural banks and small finance banks) are required to lend 40 per cent of their total loan book towards priority sectors.

The government official said the funding to these projects was being taken on priority basis as the Prime Minister’s Office (PMO) was actively monitoring the developments under the mission.

“The measure will also help banks to meet their PSL targets, but the implementation will remain a challenge. The banks will provide finance which would be needed in the generation, storage and transmission of the green hydrogen projects,” he said.

Last month, the Cabinet approved the National Green Hydrogen Mission with an initial outlay of Rs 19,774 crore and the Ministry of New and Renewable Energy has been appointed as the nodal ministry to formulate the scheme guidelines.

The mission will likely result in development of green hydrogen production capacity of at least 5 million metric tonne per annum with an associated renewable energy capacity addition of about 125 gigawatt in the country, with over Rs 8 trillion in total investments.