Investments in emerging sectors rise, but bank and NBFC financing remain
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Emerging sectors like AI, semiconductors, and defence are attracting significant investments while bank lending is limited. The financing patterns vary, with AI and space primarily funded through equity. Risks such as technology obsolescence and payment delays impact the lending sector significantly. Banks are encouraged to develop specialized financing strategies to support these sectors effectively. Over the next few years, demand is expected to shift towards storage and defence-related investments.
New Delhi: Despite rising investments across emerging sectors like AI and space technology, bank and non-banking financial company (NBFC) lending remains limited, as per a report by Union Bank of India.According to the report, emerging sectors such as AI, semiconductors, defence and green hydrogen are attracting massive investments. "AI, semiconductors and defence each carry over Rs 5 lakh crore of announced public and private investment," it said.
However, banks may not be the primary financiers of all these projects, as financing patterns vary significantly across sectors, with debt financing dominating manufacturing and power projects "while AI and space stay equity-funded."
Noting that "Technology obsolescence is the top risk," it highlighted, "chip nodes shift every 3-5 years and GPUs refresh every 18-24 months." At the same time, the lending sector faces offtake and payment risks due to "few bankable hydrogen buyers, discom delays in renewables and long MoD (Ministry of Defence) payment cycles."
At the same time, investment recovery periods range from five to eight years in semiconductors and seven to ten years in space, often exceeding typical loan tenors.
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As per the report, banks should establish specialised financing desks for semiconductors, hydrogen, data centres and battery storage. It also suggested milestone-linked disbursements, receivables securitisation, order-book and TReDS financing, equipment leasing and green loans.
Going forward, "Over 3-5 years, demand shifts to storage, ATMP, offtake-linked hydrogen, edge data centres and the defence MSME tier," it noted.
Apart from this, 12 emerging sectors, led by artificial intelligence (AI), semiconductors and defence, are expected to drive India's next phase of capital expenditure growth, supported by government schemes and rising private investments.
AI leads with around Rs 5.9 lakh crore in disclosed public and private investments, followed by semiconductors at Rs 5.27 lakh crore and defence at Rs 5.07 lakh crore. Biotechnology and green hydrogen are also emerging as major investment destinations, it noted.
The report noted that private companies and global hyperscalers have pledged over USD 400 billion towards AI and data-centre infrastructure, while the semiconductor sector is targeting Rs 4 lakh crore in private investments between 2026 and 2032.
"Banks can lead with milestone-linked, receivables-backed and leasing products, backed by specialist sector desks," it said.
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Figures reflect the source report and its stated period. This article is for information and is not investment advice.
