Indian Banks and their Lending for the Solar Sector

It is a well-known cliche that banks are most willing to lend to those who…don’t need their money.

It is somewhat true for solar as well. Or at least the corollary is true – Indian banks have not exactly been keen on lending to many aspiring solar developers who however neither have a balance sheet nor a high net worth.

Now, the sob story I recounted earlier is mainly the case with MW scale solar power plants where folks need a few crores to even put up a 1 MW solar power plant. The problem exists for the rooftop solar sector as well, though the pain point for this sector is much lower compared to that for large-scale MW solar power plants.

Rooftop Solar Loans

Getting loans for rooftop solar is not such a challenge as the amounts needed are much lower, but Indian residential and commercial rooftop solar prospects had been complaining for long that Indian banks are not giving them any preferential treatment when they are so keen to go solar and go green.

This might be about to change.

From what I read, India banks may soon chase you to fund installation of solar panels on your rooftop, and that too at concessional rates.

The finance ministry has advised banks to “encourage” home loan or home improvement loan applicants to install rooftop solar photovoltaic systems and include the equipment cost in the home loan.

The move is part of an overall push to renewable energy and banks have been “requested” to offer a 1% interest concession for renewable energy projects to propagate the use of green technology . This is in addition to suggestions of a new fund-raising and lending model, where state-run lenders such as SBI and PNB, through their overseas branches, are expected to borrow from multilateral agencies such as World Bank and provide rupee loans to borrowers through their branch network in the country.

An internal assessment by the finance ministry has shown that the mode would help banks lend below the base rate by avoiding hedging costs that add up to 6-8%. Lending below base rate is something that the Reserve Bank of India does not allow currently .

The RBI has already included financing of renewable energy projects under the priority sector lending limit, which includes loans up to Rs 10 lakhs to individuals but not much lending has taken place so far, prompting the government to step in and ask lenders to prepare a special scheme with specific targets.

Loans to MW Scale Solar Power Plants

Within the solar power sector, loans to MW solar power plants is a far bigger problem today, that it is for the rooftop solar sector, for which in some cases the residences or individuals are able to put in 100% as equity, and in other cases, getting a loan is not that difficult as the amount to be raised is not very high.

In another post at Solar Mango, I had put in recently where I discussed the challenging times Indian solar power developers – especially those constructing MW scale solar power plants – are facing in the context of financing. Here it is…

In the post to which I have linked, I have noted that the Indian banks are still concerned about three types of risks

  • Offtaker risk
  • Technology risk
  • Policy uncertainties

While the first and third indeed are justifiably areas of concerns, banks should not any longer be worried about technology risks, as solar PV is a mature technology. I am confident that it won’t be long before banks no longer consider the solar PV technology to have any significant risks.

From interactions I have had with Indian banks in the recent past, the following are the terms and construct under which they are willing to lend to the solar sector, especially to small and medium scale solar power plants without any significant corporate backing:

  • Debt: Equity = 70:30, increasingly this is becoming 75:25, and in very select cases, 80:20. Well, higher the debt, the better it is at least for those who are able to bring in that extra equity, but banks will also be vary of giving too much % of debt as that will lower the debt service coverage ratio (DSCR). Do push your bank for 75:25, though. This should be eminently possible in many cases today as mentioned earlier.
  • Tenure = Banks are happy to provide a tenure of up to 15 years for solar power plant loans, with a one year moratorium
  • Interest rate = Here, things get a bit iffy. From the interactions for various clients we have had in the last few months with a number of banks, the interest rate varies from 11.5-12.5%. In rare cases, for clients with solid rating and with reasonably large capacities (10 MW at least), the interest rate might go to 11% or slightly lower.
  • Collateral Security = This is where most banks are still super strict. For developers not belonging to established corporates and hence not having any much of a balance sheet, banks ask for 100% collateral, and in some cases up to 125% collateral! This has been a thorny issues with the banking sector. Essentially, they are NOT willing to offer what is called as pure project finance or what is called as Non-recourse Financing, in which the bank offers you a loan without any security or collateral as it considers the project returns themselves to be security enough that can pay off the loan. The Indian banks are today offering financing with recourse – that is, a financing avenue in which the bank has recourse to your assets outside of the project should you default in payments. And the banks ask you for a 100% collateral, which is the recourse they have in case of default.

Well, of the above, the two things that banks can try to work on and become more solar sector friendly are:

  • Much better interest rates – IREDA, gives loans in the range 10.8-11.4% with a 0.15% discount for prompt repayments. Banks can also follow the same system. With RBI recently cutting its policy interest rates to 6.75%, a more than expected number, it should be easier now for banks to offer a more competitive interest rate for solar loans.
  • Lower collateral – IREDA, once again, asks only for collateral up to 30%. Banks can reduce their collateral at least down to 50% if not 30%.  See more on IREDA’s financial terms here

A related question many developers ask Solar Mango is: Which is the best bank to go with for solar loans, especially for MW scale power plants? Or should I go to IREDA instead of to banks?

Based on our experience, we would put it this way:

  • It is always a good idea to check with IREDA to see the feasibility of their providing you with the lending. If they are willing, they are perhaps the best bet, as they offer lower rates of interest, at lower collaterals, and flexible tenures. But IREDA might have its own constraints on the minimum scale of of projects they can fund (they are more keen on funding 5+ MW scale), and they might also be inflexible on the total project cost they can consider (some banks can consider upto Rs 6.75-7 crores /MW as total capital cost without trackers, while IREDA might be willing to consider only a lot less). IREDA might also not give more than 75% as debt, but some banks might be willing to consider 80:20
  • If you have a long-standing existing relationship with a bank, it is a good idea to consider them. They might offer you hard and soft benefits because of your relationship with them, which might to a large extent make the deal as good as that from IREDA.

There are some who had asked us if indeed a small reduction in the interest rate could make a big difference to returns.

Let us take as an example, a 1 MW plant, without trackers.

  • CUF (capacity utilization factor): 19%
  • Capital cost: Rs 6 crores / MW
  • Generation loss: 3%
  • Tariff: Rs 6.5/kWh

For the above inputs, let us look at how the results could vary depending on the interest rate:

Interest Rate LCOE (Rs/kWh) Total cash flow  (Rs lacs) Equity IRR (%) DSCR
13 5.33 1504 17.2 1.2
12.5 5.28 1536 17.9 1.23
12 5.24 1567 18.7 1.26
11.5 5.19 1599 19.5 1.29
11 5.15 1630 20.4 1.32

You can see from the above table how, if you are able to get the lending rate from 13% to 11%, you

  • Lower the LCOE by 18 paise/kWh, from Rs 5.33 to Rs 5.15/kWh
  • Get an additional cash flow of Rs 1.3 crores
  • Increase the equity IRR by over 3%
  • And get the DSCR from a borderline 1.2 to a healthy 1.3

Not bad, eh?

Best practices for the developer to make access to bank loans easier

As a developer, you can undertake some acts that will make it relatively easier for a bank to lend you for your solar power project:

  • The first of course if to ensure that he has a good and bankable PPA. More than anything else, this is the most critical. Without a healthy PPA, you are just wasting your time, no bank (or for that matter no financial investor worth his salt), would be interested in financing you. So, if you are a prospective developer, spend time to investigate how to get a good, bankable PPA for 20 years or more. A good, bankable PPA comprises two aspects: a good tariff rate, and an established and financially sound offtaker who would be able to honour the goof tariff for 20-25 long years.
  • In most cases, for small developers without any corporate backing, collateral security will be required. If you are not in a position to provide that security, explore if you could get a business partner with a good net worth who could get that collateral security for you. Sure, you will be sharing the profits with him/her, but that is what partnership is all about!
  • Choose a good EPC. Most banks are recognizing the criticality of the EPC  for the success of the solar power plant; hence, having the right EPC as your implementation partner could infuse more confidence in the bank.

Which banks are the best for solar loans?

The other question that people have is about the list of banks that provide loans for solar power plants. While only a few banks in India were really providing solar loans earlier (though many more of them were just doing public posturing), by mid 2015, most banks in India, both private and nationalized banks, have become far more receptive to solar loans. This could be either because they probably feel that the solar power sector has come of age, or because the governments (both central and state) have started pushing this to them.

As a result, the developer who has a good PPA and also can bring in the equity and collateral today has a number of choices. However, what we have seen is that most developers tend to approach the bank they are already banking with. Now, this might not be a bad idea, as YOUR bank is likely to process everything faster for you. However, Solar Mango suggests that you check out at least a couple of other banks and their terms before finalizing with your bank.

Some related news and links


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96 thoughts on “Indian Banks and their Lending for the Solar Sector

  1. Dr jaishree a prasad

    Good day,
    I, Dr Jaishree A Prasad would like to get some more info n details on setting up solar power plant.

    Thanks n regards
    Dr Jaishree A Prasad,M.Tech ,PhD (IIT Delhi)
    Director, Jaas lifestyles n amusement pvt ltd.

    1. Narasimhan Santhanam Post author

      Dear Dr Prasad

      Many thanks for asking. Can you kindly let me know what sort of info you are looking for?

      You may also write your requirements in detail to and we will revert at the earliest

      Thanks once again

      Narasimhan Santhanam
      Cofounder & Director
      Solar Mango

  2. Mahesh Rawali

    Other than IREDA are there any other gov funding agencies for solar power plants, like for small solar power plants of 1-3 MW size?

    1. Narasimhan Santhanam Post author

      Hi Mahesh

      Many thanks for the question.

      Of course, there are the many banks other than IREDA, but if you are asking about specialised financing agencies as part of the Indian government, I can point you to PFC (Power Finance Corporation) which now has a dedicated division for renewable energy financing, called PFC Green.

      Hope this helps


      1. Aby

        Can you point out some bank names that provide Exact loan for solar roof top ?? I Tried with all national and private banks, and can you please assist how to applay for PFC

  3. Madhusudan Bisht

    My bank is asking for 130% collateral. What is the logic in asking for collateral higher than the total project costs?

    1. Narasimhan Santhanam Post author

      Madhusudan…Hi! Thanks for your comment.

      I have also heard of instances where banks had asked for 100+% as collateral for solar power plants; in many of these same cases however, I can to know that the bank had relented and accepted 100%.

      Now, 100% collateral isn’t a great result either, but right now, unless you are a medium/large corporate with a strong balance sheet, and had done years of dealings with the bank, getting loans without a large % as collateral will be difficult.

      As I mentioned earlier, IREDA is OK to provide loans at less than 30% collateral, so you might want to try that for your loan!

  4. Mahesh Maheswari

    One problem is that Indian banks do not understand many terms and technologies used for solar pwer plants. Example is the use of trackers. Trackers increase project cost by about 10% but banks are not sure if trackers provide any benefits and so insist on having project costs at only Rs 6 crores / MW which is applicable only without trackers…

    What is your suggestion to convince banks about the new technologies such as trackers?

    1. Narasimhan Santhanam Post author

      Mahesh. I appreciate your concern, but I think banks are getting familiar with most aspects of solar PV, so I doubt that the understanding of or rather the lack of technology understanding by banks will be a serious problem any more.

      Any way, in most cases, for power plant sizes 1-5 MW, banks are taking 100% collateral security, so they should not be too worried about the technology uncertainties, what do you say!

  5. Neha Natwarlal

    What about financing from outside India? My business partner says she can arrange for US based financing at less than 7% overall. Is this possible and why are Indian companies not going for foreign loans? Because the interest rates in many western countries are very low, less than 4%

    1. Narasimhan Santhanam Post author

      Hi Neha. Thanks for your query

      Yes, international financing is certainly an option, but it might not be feasible for everyone.

      Firstly, this option might not be easy for small solar power plants, say less than 5 MW, as international banks might not be willing to go such a long stretch to lend relatively small amounts (for them, that is)

      Second, international banks will look for a number of qualifying factors such as credit rating etc., for which many Indian developers might not quality

      Third, while the base rate for international financing might be 2-3%, once you add the rest, especially adding the charges to cover the exchange rate and any other risks such as country risks, the final lending rate might be in the range 8.5-9%.

      So, do explore international financing avenues, but keep the above points in mind to set your expectations and outcomes…

      1. Brahatheeswaran

        Dear Jaya Raju

        Can you let me know how you are able to provide loans at 7%, surely this must be through international borrowings, but can you throw some light on your sources so that I can check with one of our clients who are putting up a 25 MW solar power to look into this? Thanks

  6. Mahesh

    Dear Sir,
    How to play about institute Level this finance Management, Like depreciation, and subsidy Like Please some details if you Have any draft proposal/ and information.

    1. Narasimhan Santhanam Post author

      Dear Mahesh

      Thanks for your comment/query.

      But I’m afraid I do not understand what you wish to know…

      Can you elaborate please, thanks!

    2. Kathy

      I think he wants to know from a financial expert how each of these like depreciation, subsidy work and how they should be incorporated in financial calculations

      I am right Mahesh sir?

  7. Narasimhan Santhanam Post author

    I would also like to add here a comment that was included for another post ( )

    Dear Narasimhan,

    This is a very detailed and useful article and appreciate your attention to pertinent details in your analysis.

    From my personal experience with at the least three nationalized banks, all of them demanded an overall DSCR of minimum 1.3 and one of the banks asked for 1.5. None of the banks I dealt with, both nationalized banks and Private banks, were ready to offer more than 10 years loan repayment period. Even with 100% collateral, banks are willing to provide a max of 10 year repayment period only, for small size (1 to 5 mw) projects.

    I completely agree with you that using trackers (Single, dual, etc based on the latitude) makes business/financial sense and we need to be installing more projects in India with trackers.

    The idea of smaller size solar parks wherein smaller size developers can still benefit from the savings that comes with having their plant inside a solar park (ease of evacuation/right of way and the savings that comes with that, ease of land acquisition, O&M cost, etc) should gain more prominence in India. The way things are moving in the solar domain now in India, it looks like only the Wellspuns, SunEdisions and ACMEs can do Utility scale Solar PV projects.

    As you said, it is indeed heartening to see the Solar filed take off in India. We have all been waiting a long time for this.

    Thanks again for your excellent, incisive analysis. Looking forward to more such articles from you where facts and numbers are presented and elucidated.


    And my reply was

    Thank you Gopal, and it is nice to say Hi here once more.

    On DSCR, I agree. While some banks insist on 1.5, they themselves know it is pretty high and I am sure most will eventually agree for 1.3

    On repayment period, I am surprised you say that banks are not willing to give you over 10 years. Because, at lease for some of the banks we got in touch with for our clients, they were OK upto 15 years (including the 1 year moratorium). Which banks did you check with, by the way?

    Smaller solar parks is indeed a good idea. Perhaps 25 MW each, is that the scale you have in mind? Well, I guess this can be private sector initiative as well, though most folks I have met who are putting up solar parks are looking at 100 MW and above.
    The apprehension you have about solar becoming a Big Boys game is shared by many of us. Well, not sure how the future will move, but let us also realise that it might not be that easy for large scale solar power plants to be erected all over India. On paper, a few 500 MW solar parks facilitating the move to satisfy the government’s target of 60 GW looks like a good idea, but when it comes to actually getting it done, in terms of land procurement, having enough evacuation infrastructure, it might be more difficult than we think.

    We will come to know of how this transpires in 2016. I am only hoping that small businesses also have a role to play in the MW scale, grid connected solar power plants in India. Time will tell.

  8. Kamal Agrawal

    Recently, the government made solar as part of the priority lending sector. Will this make solar loans cheaper, and can this also make access to loans for the solar sector easier?

    1. Narasimhan Santhanam Post author

      Hi Kamal

      Thanks for asking

      In short, I doubt that the inclusion of solar in priority lending alone can make a big difference.

      The reason is as follows:

      The priority lending categorization essentially means that lending to solar also can be included as priority lending for the Indian banks. Now, solar is not the only priority sector for banks (agriculture, for instance, is another prominent priority sector). As a result, most banks can easily fulfil their priority sector lending requirements without having to lend to solar. Thus, it all depends on how banks view the overall attractiveness of lending to the solar power sector – if they feel it is not very attractive, they can pretty much ignore lending to solar and still fulfil their priority sector lending mandates.

      It would have been a different story had there been something called Solar Lending Obligation for the banks (similar to Solar purchase obligation or renewable purchase obligation)!

      On your question of cheaper rates because of inclusion in the priority sector, I doubt it. I spoke on this to many of my contacts in the banking industry, and they feel that inclusion in the priority sector alone could not have any much effect on the interest rates – the most they can think of is a 0.25-0.5% decrease, nothing more substantial. In this context, it is worth noting that priority sector categorization is not the same as a decree to issue soft loans!

      Hope I made some sense.

  9. Kunal Modi

    Some EPCs are saying they can get us buyers credit from the solar panel manufacturer for a period upto 3 years. And they say as a result of this,the overall interest rate can come down.

    Is this possible and what is the procedure for this?

    1. Narasimhan Santhanam Post author


      Thanks for your question.

      Yes, in theory such buyers credit or supplier’s credit is indeed available from some of the module makers, even some of the premier tier 1 module makers. But I have not seen too many small developers availing it.

      Some of the things I can share about this credit facility:

      The overall impact it can make on your IRR and cash flow might not be significant. Consider it like this: The supplier is essentially giving you a loan at a much cheaper rate (it might be effectively about 8%, the figure being the total of a small price increase because of the loan and any hedging you might have to do for the exchange rate as you will be paying in Rs for a set dollar price). This low interest rate is available for perhaps a max of 3 years; and it is available only for the module portion of the cost. which is about 50% of total. Thus, a crude calculation suggests that the effect it can have on IRR will be something like (4%)*(3/10)*50% = 0.6% approx. 4% is the difference between the interest rate you get from banks (12%) and the effective interest rate for the supplier credit, 3/10 denotes the ratio of your payment period to the supplier vs the payment period to your bank and 50% is the proportion of project cost taken up by the supplier credit. Of course, what I have done is just a crude calculation, it might not be correct in the financial accounting sense, but it will still be close to what you eventually arrive at after detailed financial and cash flow analysis.

      Now, 0.6% is nothing to write home about, especially because there could be some additional transactional and other soft costs involved in getting the supplier credit which could further bring down the already paltry increase in IRR.

      2. Even assuming you are OK with the marginal increase you get in your IRR, such supplier credit might be available only for a certain scale of solar power plants. Only a few EPCs I interacted with on this were confident they can get supplier credit for one of my clients. I spoke to at least 3 Tier 1 solar module firms on this, and none of them were offering this credit to Indian solar power plant developers.

      So: Overall, I think the supplier credit concept is something that might not be super useful for smaller scales MW power plant developers, though those putting up power plants higher than 10 MW could consider it seriously.

  10. Manisha Bhatia

    We keep hearing about government stepping in and doing something for solar sector to get cheaper loans. But you are saying the interest rates are still at 12% .

    So what has the government’s actions actually achieved so far?

    1. Narasimhan Santhanam Post author

      Hi Manisha

      Thanks for asking the rather interesting and important question.

      In short, the answer is, nothing substantial has been achieved in terms of interest rates because of the government’s talk of solar power. In fact, even the 1% decrease in interest rates offered for solar (from 13% to 12%) is not because of any government push specifically for solar, but because of RBI’s actions in general, which cut the interest rate by 50 basis points, and because of the banks becoming more familiar with solar power sector.

      The only domain where I can see government action having resulted in something is in the lending rates of IREDA which are now pretty good at 10.2-11.4% ( see here – ).

      Outside IREDA, I have not seen a big effect on nationalised and private banks.

      I reckon that we can say the government’s actions and policies have made a big difference if we are able to bring the lending rate to less than 10%. Let us hope that the day is not too far off.

  11. S Padmanabhan

    I do not see why banks should relax norms for solar projects that they wont do it for thermal or wind projects.Given the payment record of Discoms, banks will have to inisist on higher DSCR, higher debt service reserve etc.If wind power payment record is any guideline, solar payment record cannot be any better.Every state is delaying payments.Interest rate is what the economy offers.The biggest problem this accelerated growth of solar power would bring is the inability of the transmission system to handle such infirm power -particularly peak power. 100GW looks attractive ,fabulous- it will also give almost 80000 MW of peak power for two hours a day- ie 80Million units per hour for atleast two hours. Given that our firm power capacity is around 150000MW- and operational capacity at 70%PLF is 100GW-100000 MW- can we back down thermal power? We have to back down only solar – as we do in case of wind now. The economics of 19-21% CUF will go for a toss in this situation. Can protogonists of solar power explain this to me? I am unable to understand how AP,Telengana,,Rajasthan,Gujarat etc will do with 20-30GW each in next two years?

    I also do not understand the IRRs that you mention in your paper- 17.20% at a tariff of Rs 5.33 at 13% interest. Can you share the model publicly so that we understand your numbers?


    1. Narasimhan Santhanam Post author

      Hi Paddy

      Many thanks for your kind comments

      I agree with some of them, but may be not all of them

      For instance, backing down for wind does not mean backing down for solar because wind generates most during Off Peak hours and many times in the middle of the night while solar can help genuinely in Peak Shaving

      On your wondering why banks should be any more keen to lend to the solar sector when the offtaker risk is the same, yes, I do agree with you on that point and this is precisely why many banks are asking for high collateral security

      On the IRR estimates, we have pretty much the same standard financial formulae that any financial account uses. While I will not be able to share my Excel spreadsheet here, I do request you to punch in reasonable assumptions on CUF, interest rates and capital cost, and you should be getting similar IRRs

      Hope it helps, and thanks once again for asking

    2. Karthic


      Banks should relax norms because solar is green power and the government wants to promote green power, and the banks should oblige

      Don’t you think it is a no brainer?

  12. Ravi Ramesh

    Can some one give the list of INdian banks that are providing loans for solar power plants? please also say which are the best banks that provide the lowest interest rates?

    1. Mrityunjay

      Many Indian banks – both nationalised and private banks – give solar loans today.

      Which bank is best for you usually is the bank that you already have relationship with. You have to negotiate with banks to get low interest rates, many of them will start with 12.5% and the rates will also depend on the credit rating of your company

      IREDA gives much lower interest rates today, so you should talk to them also

    2. Narasimhan Santhanam Post author

      Mrityunjay has put it all so succintly that there is hardly anything for me to add.

      Yes to all that he has said,

  13. Vasantrao DESHMUKH

    What about loans from US banks such as EXIM and also chinese trade development banks? Can we get loans from these at low rates?

    1. Mrityunjay

      You can get loans from trade development banks, but you should be buying components (especially panels) from that country to quality for low interest loan. Example is, if you want loan from EXIM bank, you should purchase solar panels from US companies like First Solar or Sunpower

  14. Venky Krishnan

    No point blaming the banks alone; unless the government supports them through the RBI and other sources, the banks can do little as they have their own mandates and pressures otherwise

  15. Jairam Sriram

    Solar was included in the priority sector many months back by the RBI but I dont think that has made any difference to banks’ willingness.

    1. Mrityunjay

      Banks have many other priority sectors other than solar, so they do not need to lend to solar in order to satisfy their priority sector lending mandates

    2. Narasimhan Santhanam Post author

      Even assuming banks do give priority to solar loans, it might not mean much to interest rates – at best perhaps a half % reduction

  16. amarnath vikkum

    Dear sir

    For your information, many Indian banks are now giving loans to solar at or less than 12%. Earlier they were giving it only at 13%. I think this itself shows that Indian banks are more and more interested in solar financing

  17. Abhishek

    Dear Reader
    Greetings for the Day
    I am Abhishek Sethia who is doing R&D on how to put up a Solar PV plant in Tamil Nadu/Telangana/Andhra Pradesh. We are planning to put up a plant of 1MW to 5MW depending on the area we get. If the company has got any project report or any experience which they can share would be grateful for me.
    If you got any information or any help which you can provide me, Kindly do the needful
    Hope to see a rpl from your side.
    With Warm Regards,
    Abhishek Sethia-9435592396

    1. Narasimhan Santhanam Post author


      I request you to send a note to Ramya Gopinath – ; at Solar Mango, we provide specialised assistance to companies such as yours setting up 1-5 MW solar power plants.

      Ramya can provide more details on how we can help.

      I look forward to hearing from you. and many thanks for your query and interest

      1. anand sahu

        dear sir,
        i go through your writings on solar power plant and find them much useful for beginners also.
        i am an individual and have arranged some 20 acres of land on lease from the government in chhattisgar. can i think of establishing a 5 mw solar power plant over there? i have only some theoretical knowledge in this regard. your kind assistance and counsel would highly be regarded.
        thank you
        contact number

  18. SP

    I checked with EXIM bank in USA they only provide loan if you buy solar inventory from US company , So question is which country has best high quality panel and which country.

    I hear china, Germany are best for solar panel and all people usually import from Germany .

    Any guidance on solar pv panel selection ?

    1. Narasimhan Santhanam Post author


      Yes, you need to purchase panels from US companies if you wish to qualify for loans from EXIM. Same is the case for other countries (you got to source from China for assistance from Chinese Dev Bank – )

      With all the top 5 solar panel makers ( in terms of GW of production) being from China, and also with almost all of them being in Tier 1 (high quality products), and with the Chinese panels being the most economical in the market, and with India having no anti dumping duties against Chinese panels, the decision on which country’s panels to go with is perhaps the easiest decision to make for an Indian solar power project developer today!

      1. Narasimhan Santhanam Post author

        Dear SP & Masthan Reddy

        I agree that banks start off with 100+% collateral for solar farms, but I know for a fact that banks such as Andhra Bank have given these at collaterals less than 75% for Tamil Nadu PPA of Rs 7.01/kWh

      2. Narasimhan Santhanam Post author

        SP – also, just curious, which bank are you referring to that is asking for 150% collateral?

        I would suggest you Point out to the bank that many nationalized banks have started accepting collaterals of about 70% or even a bit less, and IREDA asks for hardly 30% collateral

        If your bank had already lent for solar projects, there is every chance they will significantly reduce the collateral as they already are aware of the key aspects, returns and risks for solar projects. The challenge will be if your bank has not loaned at all to solar projects. In this case, it could take quite some convincing before they come down on collateral and interest rates

        1. SP

          Hello Sir,

          I got 150% number from consultant, BTW IREDA with 30% collatral what is the interest rate , is this loan is available for new company ?

          Mixing 2 reply from another post. 9% ECB will be reducing balance loan or straight. In ECB people need to pay interest on whole money because you pay principal amount at end of the tenure which is Bullet Payment . In this case company need to save whole money till end of tenure and hence company can not use money to start another plant? Also tenure is usually 5 years only.

          What do you think ?

          3rd big concern for us is MAT. Due to MAT AD is not effective , What is your guidance from Financial model for this MAT 20% is big amount.

          Like SEZ Modi jee should put Solar out of MAT so people can really use 10 year Tax Holiday.

          Regards, SP

          1. Narasimhan Santhanam Post author

            Dear SP

            Many thanks for your comment

            I feel you should contact banks directly instead of approaching them through a consultant. I am confident that you will get collateral requirements at 100% or less.

            For IREDA, interest rates start at 10.2% and goes all the way to 11.4%, depending on the credit rating of your company (new companies and SPVs started for solar will have one of the lowest ratings, so they will most likely be eligible only for the highest interest rate)

            Hope this helps

          2. Kathy

            Why should any bank ask for 150% collateral? Why more than 100% – how does this make any sense sir?

    1. Mrityunjay

      IREDA loan disbursement is actually quite fast. While some will say IREDA is slow, it is not true in most cases, you can get the loan within 2 months from the time you apply

      Because IREDA was set up mainly to give loans for renewable projects, they have systems and processes that can expedite loan giving process for solar power projects

      1. Narasimhan Santhanam Post author

        I agree with Mrityunjay. From what I have seen, on average, IREDA loans for solar power plants take less time than loan sanction and disbursement from other nationalized banks

    1. Narasimhan Santhanam Post author


      Good question

      I think the central government has started trying to do this, from what I understand

      I doubt you will get really soft loans at 5%, but for some sectors of solar, you might start seeing loans at about 10%. Now, this will most likely start off for the rooftop and offgrid solar sectors but hopefully there will be some reductions for MW solar as well.

      I also understand that the World Bank is giving $500 million loan to government, and through SBI, this loan will be provided for rooftop solar projects at interests much lower (2-3% lower than current interest rates for commercial borrowings…again, this is for rooftop solar projects, but I understand that there are some fundings that the World Bank is looking at giving to solar parks as well

      Stay tuned

    1. Mrityunjay

      For banks, solar projects are no different from others

      Whatever collateral is acceptable for other projects, these are acceptable for solar power projects also



    Is it easier to get bank loans for captive solar power plants because here there is no question of payment defaults by the discoms?


    1. Narasimhan Santhanam Post author

      Dear Harish

      Good question, but difficult to answer

      Because the banks might actually think the offtaker risk is higher for captive plants, as the offtaking company might not even exist for the project duration (say 20 years), whereas the government at least in some form is likely to exist for 20 years!!

    1. Karthic

      First and foremost, who the offtaker of the power and the signatory of the PPA is, especially given the sorry financial health of our discoms

    1. Mrityunjay

      Direct international financing for small solar power plants will be difficult, international financing is possible mainly if the borrower has a fairly large balance sheet and has significant history of having borrowed from international sources

      But with the $ against Re being so volatile, international borrowing is also risky today

      1. Narasimhan Santhanam Post author

        Totally agree with Mrityunjay

        He is making my job really easy by answering many questions here, and actually answering them much better and more concisely than I could ever have!

        Thank you Mrityunjay, and take care

    1. Narasimhan Santhanam Post author

      Dear Birendra

      Thanks for your interesting and useful question

      I would answer it from two perspectives

      1. Any lending by a bank is provided mainly on the basis of your project and your (developer) profiles. While both project and personal profiles are important, most solar lending today is recourse based, which implies that banks are fully relying on your project alone to ensure they are paid back interest and principal. From this perspective, one can say that an EPC can make little difference to a solar project lending as it is you the developer that the bank is more interested in than the project per se.

      2. At the same time, project characteristics are important too – especially who the offtaker of the power is and how well the power plant has been implemented so it lasts for 25 years. For the latter, having a high quality EPC with you can make a difference as it gives the banks that extra confidence that the project is in safe hands.

      Given the above two angles, EPCs do try assisting solar farm owners to get bank assistance, but I would say they can only have a limited influence

      Hope my answer was of help

      1. SP


        Any of your client used ECB Automatic route to raise money at 2% ?

        Would like to know real time experience and pro n cons.


        1. Narasimhan Santhanam Post author


          ECB is in theory available at about 2.5% – LIBOR + 0.5%+1% for LC could indeed come to 2-2.5%

          But this does calculation does not take into account the interest premium charged by Indian banks for exchange rate cover.

          It works like this:

          An international bank could in theory be interested in lending to you (through your bank’s LC) at LIBOR + 0.5%, which could come to about 1.5% for a 3 year loan. Indian banks typically charge about 1% as LC charges. Thus, the total comes to 2.5%.

          Now, if you just take the above route, you have to Pay the Indian bank in $ for the loan you have taken from the international bank. Which means, if the rupee depreciates much further against the $, you will end up paying a lot more in rupees than just the 2.5% interest.

          Now, this exchange rate risk is not something many developers would like to take. Instead, they go for an exchange risk cover premium. In this route, your bank charges an interest which can be considered as a premium you pay; under this, you pay to the bank only in rupees, and so you would be paying only 2.5% interest in rupees.

          But this exchange rate cover interest could be as high as 7% depending on the duration of the loan etc; this could go even higher the way rupee is behaving against the $

          So, you have two choices:

          You take the exchange risk on your head and pay to your bank in $, and the interest is only 2.5% – but if Re depreciates swiftly against the $, you could end up paying a real lot more.

          Or you take the exchange rate cover and pay in Rs, so you pay bank only 2.5% for the loan itself, but the exchange rate premium interest increases the effective interest rate to 9.5%-10%. But here, you are sure about what your exposure is.

          Your choice is thus between: [2.5% + exchange rate risk] OR [9-9.5% and no exchange rate risk]

          Not an easy choice to make, but that’s there is in front of you right now in the context of ECB loan.

        2. Ram Mittal

          Dear SP

          I agree with Mr Santhanam

          The overall cost of an ECB loan will be much higher than the 2% you state. Once all costs and risk coverages are considered, it will be at least 8%, closer to 9%

          Now, if you do not wish to take the exchange risk cover, it could be theoretically be about 3%, but then if you factor in the Probabilities connected to increased rupee outflow owing to depreciation, it might come to the same 8-9%

          Besides, ECB route is very difficult for loan amounts lower than $25 million, in fact the sweet spot might be $50 million and above for the lenders…

          Hope this helps


          1. SP

            I removed ECB from my business model as till 5 year i need to save profit to give bullet payment and hence I can’t grow my company

    1. Narasimhan Santhanam Post author

      Agreed. Totally.

      Small scale solar power developers, while they might all want it, will find it very difficult to get ECB (External Commercial Borrowings) or international loans in simple words.

  20. SP

    Buying land :- for plant developer need to buy Land , but for putting the electrical pole from plant to Grid Do SPD need to buy land from each land owner . Is it SPD ‘s responsibility to buy small small land for each pole . ?

    How this works when putting transmission line might be some farmer reduse to sell small land ?


    1. Narasimhan Santhanam Post author

      This is indeed a nagging issue, and it is termed the Right of Way issue – that is, getting the rights to having your transmission poles and overhead wires on other peoples’ lands – usually farmers’ lands.

      Some times, if you are lucky, your transmission line will need to go only along the main road, in which case the Right of Issue will not be a concern, but where it crosses many farmers’ lands, you will need to get the consent of the farmers.

      No, you don’t have to buy those lands!, but you need to get their consent. In most cases, this involves paying them some incentives; usually, you go through the panchayat head of the respective villages and he will work out something for you.

      This process can be a bit messy and in some cases, could take a while, so do keep this in mind while planning your solar power plant – there have been cases where solar farm construction had gotten seriously delayed because the farmers got over ambitious and the developer had to negotiate hard and long to get them to agree on a reasonable incentive.

  21. Vikram Rastogi

    I read about loans given by IREDA based on external grading. Who is responsible for this and how can we get the best grading?

  22. Bhaskar Bhatt

    Dear Sir

    I want to go for buyer’s credit for my solar panels. But I understand the process is long and the savings might not be huge. Does securing a buyer’s/suppliers credit mean I can have added savings on my loan repayment amount?

    I plan to put up a 3 MW solar power plant in Karnataka

    1. Karthic

      Well, the rather volatile re vs $ situation might play spoilsport, otherwise I think buyer’s credit can give you some decent savings over direct bank loans

    2. Mahesh

      Dear Sir,
      We are intigetor rooftop and ground mounted pl send details on mail greenenergypl
      Mahesh ganpate

  23. Manohar Jain

    I am keen on knowing more about when to start the bank loan process for a solar power plant.

    Suppose I have a PPA, when should I start to apply for a loan? Should it be the EPC who does it on my behalf or can I apply for it from my side?

    1. Narasimhan Santhanam Post author

      The best time to start working on a bank loan is when you are fairly sure you will get a PPA and not after you have got a PPA

      You might ask whether the banks will do anything without your PPA; true, the banks will not start the loan process unless you show a PPA, but even before any bank starts this process, you might want to check with multiple banks on the best terms they can give, and have these insights ready before you start working a bank in full steam.

      Such exploratory would could take some time, and why not do it before you get a PPA if you are sure or almost sure of getting one, so that the duration between the PPA signing and the actual loan sanction is reduced?

  24. Birender

    Hi, this is Birender Das here

    Sir, I want to know Is it possible to secure 100% loan financing for a solar power plant?

    1. Narasimhan Santhanam Post author

      Dear Birender

      Many thanks for your question, quite an ambitious one I must say

      Well, the very best you can expect from Indian banks even in theory is 80:20 (80% debt and 20% equity), but in most cases the best you can expect is 75:25.

      Now, it is quite possible that your bank might accept a slightly higher project cost than the actual and sanction the loan, in which case your effective debt:equity might tend towards 80:20

      Unless your bank is very generous in accepting a much higher than actual project cost (they are not supposed to), please be ready to bring in a minimum of 20% of the total project cost as equity.

      I doubt 100% loan is possible in any country’s banking system – sorry to disappoint you!

  25. Dinesh Venky


    You can get 100% loan maybe if you are taking loan from friends or relatives

    But from banks, 100% of project cost in loans is not possible in India

    1. SP

      even in US also, it is difficult after 2008 meltdown

      still bank rates are near zero .. and talk are it might go in negative like Japan

      1. Dinesh Venky

        Dear SP

        Many thanks for your reply to me

        Can you tell us at what interest rates solar power plants in the US are getting funded?

        Thank you


    1. Dinesh Venky

      Thank you Kathy for your remark

      I agree bank loans are costly but if I am not able to bring in the equity component (if I simply do not have enough assets or cash!!), what is the alternative except 100% loan?


  26. Brian

    @Narasimhan We are based in Europe and want to lend Euro 200,000 @ 6% for a solar project to an Indian company for repayment in 7 to 8 years as an ECB. How to go about it? Thanks in advance.

  27. Neha


    Can you confirm if working capital loan availed by Solar module manufacturer and EPC player is classified under PSL as per RBI guidelines or not?

  28. Shiva Kumar B J

    Sir, please help me I would like to generate solar power plant in my 5 acre land please give me full details of how to start solar power plant and what is the cost in 5 acre land solar project also bank loan details and your contact number also…. Please sir

  29. Abhishek Bapat


    I would like to understand the payment terms for a Solar loan?

    1. Is it an amortized loan? i.e. a fixed payment like e.g. a car EMI.

    2. What is the payment schedule like? e.g. Quarterly/annually?

    3. Is it an Interest only with a balloon principal payment at the end?

    I want to understand how will the payment terms affect my cash flows?


  30. Satyejitt Dalvi

    Hello Sir,

    I want to set up a 50Kw roof top solar plant on my Society can you please provide me a funding bank or finance institution phone number.

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