NEW DELHI: The government is set to ask banks to carve out a special window for lending to renewable energy projects. The advisory may come as early as Monday when finance minister PChidambaram meets state-run bank chiefs.

While lending to the power sector has consistently increased, there is preference to finance conventional projects, resulting in a meager loan flow for the renewable energy sector, sources privy to the discussions said. According to latest data, bank loans to the power sector added up to over Rs 4 lakh crore at the end of January 2013.

Banks have been reluctant to lend to renewable energy projects given the higher risks involved and viability concerns. Aggressive bidding under the Solar Mission and lack of evacuation facilities in many states make lending to the sector unviable, said bankers. As a result, the government is suggesting that lenders carve out a separate sectoral exposure limit, which may be separate from the one on power, or can be part of the exposure cap for the electricity sector as a whole.

Banks are also being asked to step up lending directly to individuals as the Reserve Bank of Indiahas now decided to include direct funding to individuals for setting up of off-grid solar and other renewable energy solutions for households as priority sector lending.

The working group on power for the 12th plan has projected renewable energy capacity addition of 18,500 Mw, which will need investments of Rs 1.35 lakh crore.

Within this, almost half the fund will be required for setting up wind power capacities, while over one-third (around Rs 50,000 crore) is expected to be used in setting up solar power generation capacity. Of the remaining, a little over Rs 10,000 crore is expected to flow into biomass and the remaining Rs 8,000 crore to small hydro-power.