The Indian financing industry has seen a sharp slowdown since the IL&FS crisis with credit growth slowing down sharply for the overall Indian economy. This has a feedback effect where lower financing leads to lower growth which in turn leads to lower demand for credit. The Indian GDP fell to below 5% and there are signs that the coronavirus will result in the economy not really being able to accelerate growth in the coming quarters.

The Indian solar industry is highly dependent on debt given that solar projects typically see 80% debt which can increase to 85%. Major Indian banks such as SBI have stopped lending to the solar sector as they are seeing a buildup of huge bad debt from the power sector which has a lot of distressed coal-based thermal power plants. The private banks are also not willing to lend too much to the solar sector as the biggest lender to solar projects – Yes Bank is currently on the brink of shutting down due to bad lending decisions. The government is thinking of selling Yes Bank to one of the larger government banks because if Yes Bank fails then it will result in a major adverse domino effect on the overall financing sector as well as the economy. NBFCs which had sharply grown their lending books as the state-owned banks had retreated are also facing issues after the IL&FS crisis.

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Large Indian solar developers are desperately looking to offload assets from their balance sheet to raise liquidity to make payments for their loans as well as generate cash for developing new projects. Mahindra recently sold off its solar assets to Hong Kong based power group CLP India. The ACME group which is one of the top three solar developers also sold its assets to Actis as the company needed to pay debt to the Piramal Group. The Indian solar industry is slowly maturing with the stronger hands getting hold off assets at a good valuation as the lending tide recedes from the industry. CLP which is one of the largest foreign private power groups operating in India had not participated in the solar auctions and its strategy of not bidding too low is paying dividends as it can now buy cherry-picked assets at a lower price from the market.