According to a leading consultancy firm, the Reserve Bank of India's (RBI) potential changes to project financing could increase borrowing costs for renewable energy projects in India by up to 1 percentage point. This could lead to a rise in prices for wind and solar power in the country.

The draft proposal from the RBI suggests that lenders will be required to allocate up to 5% of the capital they lend to infrastructure projects under construction. This is a significant increase from the current norm of only 0.4% provisioning for standard assets. However, as projects mature and begin generating cash for loan repayment, this allocation could decrease to as low as 1%.

If these proposals are implemented, there might be a slowdown in the deployment of renewables at a time when India aims to ramp up green energy installations to meet its 2030 and beyond targets. Additionally, these guidelines could affect other projects like coal, road, and hydropower, which typically have longer gestation periods.

The increased requirement for banks to hold more funds to cover potential defaults usually leads to higher lending rates, which could impact the profitability of lending institutions.

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