India’s emerging industries are expected to generate new financing opportunities for banks over the next three to five years, particularly in battery storage, semiconductor packaging, green hydrogen projects with assured buyers and defence supply chains, according to a research report by Union Bank of India, The Times of India reported.
The report identified artificial intelligence (AI), semiconductors and defence as the leading sectors in the investment pipeline, with indicative public and private investments of around Rs 5.9 lakh crore, Rs 5.27 lakh crore and Rs 5.07 lakh crore, respectively.
It said lending opportunities are likely to expand across advanced semiconductor packaging and assembly, battery recycling, lithium iron phosphate (LFP) and sodium-ion battery manufacturing, energy storage infrastructure and suppliers of components to the defence industry.
Green hydrogen projects supported by assured offtake agreements could also attract financing. Meanwhile, growing demand for AI inference is expected to drive expansion in data centres, particularly edge and colocation facilities.
However, the report highlighted several risks for lenders, including rapid technological obsolescence, uncertain revenue streams, delayed payments and long investment payback periods. Semiconductor projects generally have payback periods of five to eight years, while space-related projects may take seven to ten years, creating a mismatch with conventional loan tenures.
AI infrastructure presents additional challenges because of short technology cycles. Graphics processing unit clusters, which support AI computing, may require upgrades every 18 to 24 months.
According to the report, ten of the 12 emerging sectors already have identifiable debt-financing routes. AI and space, however, continue to rely predominantly on equity funding because of technology-related risks and extended payback periods.
The report recommended that banks build specialised lending capabilities for semiconductors, hydrogen, data centres and battery storage. It also suggested introducing financing options such as milestone-linked disbursements, receivables financing, equipment leasing and green loans to address the specific requirements of these industries.
Renewable energy, semiconductors, green hydrogen and critical minerals were identified as sectors suited to project finance and funding through development finance institutions. Electric vehicles and drones, on the other hand, could benefit from asset financing and lending by non-banking financial companies.
India’s renewable energy capacity stood at 288.6 GW against its target of 500 GW by 2030. The electric vehicle and battery storage market was projected to expand from $34 billion to $113 billion by 2030, the report said.
As investment in emerging industries increases, banks are expected to find more financing opportunities in commercially viable projects and businesses across their supply chains.
