India’s Emerging Sectors to Drive Credit Demand Toward Battery Storage and Semiconductors, Says Report

Financing demand across India's emerging sectors is expected to pivot toward battery storage, semiconductor packaging, and green hydrogen projects featuring assured buyers and defence suppliers over the next three to five years. According to a research report by the Union Bank of India, investments in these new growth industries are creating distinct lending and banking opportunities.

The report highlights that artificial intelligence (AI), semiconductors, and defence are leading the investment pipeline. These sectors account for public and private investments of approximately ₹5.9 lakh crore, ₹5.27 lakh crore, and ₹5.07 lakh crore, respectively. Financing opportunities are projected to emerge specifically in advanced semiconductor packaging and assembly, battery recycling, lithium iron phosphate (LFP) and sodium-ion battery capacity, storage infrastructure, and component supply chains for the defence industry.

Additionally, the report notes potential for financing hydrogen projects supported by assured offtake agreements. Demand for data centres is also expected to expand toward edge and colocation facilities as AI inference scales up.

Despite these opportunities, the report cautions that lenders face significant risks, including technology obsolescence, uncertain revenues, delayed payments, and extended investment payback periods. For instance, semiconductor projects typically require payback periods of five to eight years, whereas space projects may take seven to ten years—timelines that exceed conventional loan tenures. Similarly, AI infrastructure faces rapid technology cycles, with graphics processing unit clusters requiring hardware upgrades every 18 to 24 months.

Currently, ten of the twelve emerging sectors identified have accessible debt-financing routes, while AI and space remain predominantly equity-funded due to heightened technology risks and long payback periods. To address these structural dynamics, the report recommends that banks build specialised lending capabilities tailored to semiconductors, hydrogen, data centres, and battery storage. It also suggests deploying products such as milestone-linked disbursements, receivables financing, equipment leasing, and green loans.

Regarding specific financing mechanisms, the report identifies renewable energy, semiconductors, green hydrogen, and critical minerals as well-suited for project finance and development finance institution-led funding. Meanwhile, electric vehicles and drones could benefit directly from asset financing and non-banking financial company lending.

Contextually, India’s total renewable energy capacity stood at 288.6 GW against a national target of 500 GW by 2030, while the electric vehicle and battery storage market is projected to scale from $34 billion to $113 billion by 2030. As these sectors expand, financing activity is expected to align increasingly with commercially viable projects and established supply-chain participants.

"This report highlights a critical evolution in India's financial ecosystem. As emerging sectors like semiconductors, battery storage, and green hydrogen scale up, traditional lending models must adapt to handle longer payback periods and rapid technological shifts. For banks and financial institutions, developing specialized underwriting capabilities and flexible products like equipment leasing or milestone-linked financing will be essential to capture these long-term growth opportunities safely." — Dr. Shishir Gupta, Founder & CEO, StartupLanes