India’s electric vehicle (EV) ecosystem is set for a significant boost, thanks to a pioneering agreement between GuarantCo, part of the Private Infrastructure Development Group (PIDG), and Axis Bank, India’s third-largest private sector bank. The two entities have formalized a framework guarantee agreement that will provide Axis Bank with a USD 200 million INR equivalent guarantee. This strategic financial instrument is designed to mobilize between USD 300 and 400 million in local currency, specifically earmarked for financing the burgeoning e-mobility sector across India.
Axis Bank and GuarantCo Partner to Drive India's Electric Vehicle Revolution
This innovative climate mitigation guarantee represents a landmark initiative in India. It is specifically structured to accelerate the development of the EV ecosystem by providing crucial capex financing. This funding will be channeled to a diverse range of stakeholders operating within the EV value chain, including manufacturers, distributors, and service providers of electric vehicles, batteries, and essential charging infrastructure.
This guarantee-backed debt funding mechanism is the first of its kind in India and is anticipated to significantly expedite the expansion and maturation of the nation’s EV ecosystem. Under the framework agreement, Axis Bank will extend qualified loans to eligible borrowers, each partially credit guaranteed for a substantial tenure of up to 10 years. The capital generated through this framework is strictly designated for greenfield capital expenditure within the EV infrastructure domain, encompassing three key categories:
- Manufacturing and Distribution: Supporting entities involved in the production and distribution of EVs, batteries, essential components, and charging infrastructure.
- EV-Related Services: Funding businesses providing services directly linked to EV usage and the broader EV sector.
- Consumer Financing: Empowering finance companies that offer financing solutions to consumers for the purchase of electric vehicles.
This landmark transaction is firmly aligned with the Paris Agreement and makes substantial contributions to several Sustainable Development Goals (SDGs). Specifically, it directly supports SDG 13 (Climate Action) by mitigating climate change, SDG 11 (Sustainable Cities and Communities) by fostering inclusive, safe, resilient, and sustainable urban centers, and SDG 9 (Industry, Innovation, and Infrastructure) by building resilient infrastructure, promoting sustainable industrialization, and fostering innovation. A key expected outcome is a significant reduction in emissions and a marked improvement in air quality across Indian cities.
The widespread adoption of EVs in India is critical to addressing pressing challenges, most notably the escalating issue of urban air pollution. However, progress in EV penetration has been slower than desired, currently hovering below 1 percent. This lag is attributed to various factors, including a significant gap in accessible and affordable financing options. This agreement between GuarantCo and Axis Bank is poised to address this critical financing bottleneck. By facilitating the entry and expansion of private sector participants and encouraging the adoption of cutting-edge technologies within the EV infrastructure sector, the initiative aims to enhance overall sector efficiency and dynamism.
By strategically channeling financing across the entire EV value chain, this partnership is expected to catalyze the production and availability of a wider array of EV models in greater volumes. This, in turn, is projected to lead to more competitive pricing and enhanced value propositions for EV offerings in the market. The combined effect of lower prices and superior fuel economy is anticipated to make EVs a more commercially compelling alternative to traditional internal combustion engine vehicles. This shift is expected to drive significant demand growth from both individual consumers and service providers. These market-driven benefits, coupled with sustained long-term government support and subsidies designed to propel EV adoption, will be instrumental in nurturing the Indian EV market and ensuring substantial climate change mitigation in the long run.
The strategic collaboration between Axis Bank India and GuarantCo was initially announced by former UK Prime Minister Boris Johnson at COP 26 in Glasgow in November 2021. It was highlighted as a key component of the UK’s Clean and Green Initiative, underscoring its considerable political significance. The formal signing of this transaction was further recognized in the UK-India Joint Statement issued on Friday, April 22, 2022, following the UK Prime Minister’s visit to India, as detailed in paragraph 22 of the statement.
Layth Al-Falaki, CEO of GuarantCo, emphasized the significance of the agreement, stating, “We are very excited to have closed this transaction with Axis Bank and will utilise this climate mitigation guarantee capacity to increase our clean green initiatives in line with PIDG’s climate strategy. This guarantee framework is our largest transaction since our inception in 2005 and we are confident that it will make a significant contribution in accelerating Electric Vehicle usage in India and as a result significantly reduce carbon emissions.”
Philippe Valahu, CEO of PIDG, echoed this sentiment, noting, “The urgency of climate action requires innovative solutions that enable the private sector to invest, and following on from the commitments delivered at COP26, we are delighted that that this agreement with Axis Bank has been signed.”
Amitabh Chaudhry, MD and CEO of Axis Bank, highlighted the strategic alignment with sustainability goals, stating, “The e-mobility framework with GuarantCo re-affirms our commitment towards achieving the Sustainable Development Goals, by providing an enabling environment to plug-in the funding gaps for capacity building in the sunrise sector of e-mobility. This will help players tackle challenges, harness the great potential and numerous opportunities in this space. This partnership, underpinned with a focus on creating a more inclusive, equitable economy and a healthier planet, strengthens our position as an ESG leader and also helps achieve an important milestone in our sustainability journey.”
