Industry Odisha Bureau, Oct 25: A Union Bank of India report sees lending demand moving to AI, chips and defence. Banks could gain new openings, but obsolescence, uncertain revenues and long paybacks pose risks.
Indian financing demand is set to shift towards new industries over three to five years. A Union Bank of India research report expects lenders to find openings in emerging sectors. These include battery storage, semiconductor packaging and green hydrogen projects with assured buyers. The report describes potential demand, not loans already sanctioned.
Three sectors lead the indicative investment pipeline, the report says. It estimates AI investment at around ₹5.9 lakh crore. Semiconductors follow at ₹5.27 lakh crore, with defence at ₹5.07 lakh crore. These cover planned public and private spending, not committed bank credit.
Semiconductors offer some of the clearest lending openings. The report points to advanced packaging, assembly and testing. These stages require costly plants and specialised equipment but carry identifiable assets. Lenders will still weigh execution, customer demand and technology choices. The report estimates semiconductor projects take five to eight years to recoup investment.
AI infrastructure presents a different profile. The report expects data-centre demand to spread to edge and colocation facilities. That shift should follow growth in AI inference, where trained models serve live requests. Yet graphics processing unit clusters may need upgrading every 18 to 24 months. Such rapid replacement complicates asset valuation and repayment planning.
Battery storage could draw financing for lithium iron phosphate and sodium-ion capacity. Recycling units and storage infrastructure are also on the list. Storage helps grids absorb variable solar and wind power. In hydrogen, the report favours projects backed by assured offtake agreements. Such contracts improve revenue visibility, though counterparty and operating risks remain. Defence component suppliers may need working capital as industrial activity grows. Payment schedules and contract visibility will shape their creditworthiness.
The report flags significant risks for lenders. These include technological obsolescence, uncertain revenues, delayed payments and long paybacks. Space projects may take seven to ten years to recover costs. Such timelines can exceed typical loan tenures, creating cash-flow mismatches.
Of twelve emerging sectors examined, ten already have identifiable debt-financing routes. AI and space remain largely equity-funded, given technology risk and long paybacks. That reflects a broad sector view, not a bar on lending. Tangible assets, steady revenues and contracted cash flows usually improve access to debt.
The report matches financing models to different risks. Renewables, semiconductors, green hydrogen and critical minerals suit project finance and development-bank funding. Electric vehicles and drones may suit asset financing and non-bank lending. It projects EV and battery storage growing from $34 billion to $113 billion by 2030. Renewable capacity stands at 288.6 GW against a 2030 target of 500 GW, it said.
Banks are urged to build specialised skills in semiconductors, hydrogen, data centres and storage. Recommended tools include milestone-linked disbursements, which release funds as projects progress. Receivables financing can support suppliers awaiting contracted payments. Equipment leasing reduces upfront capital needs, while green loans fund qualifying sustainable projects.
None of these structures removes credit risk. Lending will flow to projects with clear viability and visible repayment. Banks’ ability to judge fast-moving technologies will matter as much as capital.
