Mumbai, March 19 -- India's solar module manufacturers are facing a credit squeeze as banks are turning increasingly cautious on fresh lending to the sector amid overcapacity risks, and also reducing in some cases the loan-to-cost ratio for funding new projects.

The loan-to-cost ratio refers to the proportion of a project's total cost that is financed through loans. By trimming this ratio, lenders are effectively asking promoters to bring in a larger share of equity themselves.

This shift follows a letter from India's clean energy ministry in December urging banks and other lenders to be cautious on financing new solar photovoltaic module manufacturing capacity. Adding to the sector's woes is a preliminary 126% tariff recently imposed b...