Report Overview

A growing demand for supply chain finance and increasing digitization of trade finance are expected to drive the India Trade Finance Market during the forecast period between 2024 and 2030.

India Trade Finance Market – Industry Trends & Forecast Report, 2030

The India Trade Finance Market size was estimated at USD 1,205.67 million in 2023. During the forecast period between 2024 and 2030, the India Trade Finance Market size is projected to grow at a CAGR of 5.55% reaching a value of USD 2,466.46 million by 2030. A prominent driver of the market is the increasing volume of exports, improved cash flows driving business expansion, and the rise of clearing houses. The COVID-19 pandemic has accelerated the adoption of remote management tools, such as optical character recognition (OCR), QR codes, and RFID readers, in trade and commerce operations. Over the last century, trade finance has played a pivotal role in the expansion of global trade, with bank-mediated transactions now constituting over a third of the trillions of dollars in global trade annually. In the wake of technological advancements, the India Trade Fnance Market is incorporating innovations like blockchain, artificial intelligence (AI), machine learning (ML), and the Internet of Things (IoT). Technological integration is expected to further enhance the efficiency and scope of the trade finance market in the country.

Trade Finance – Overview

Trade finance is the process of providing financial support for the exchange of goods or services in a commercial transaction, extending from the supplier to the ultimate buyer. "Trade finance," also known as "export finance," encompasses a range of financial instruments employed by organizations involved in global trade and commerce. It includes banks, trade finance firms, export credit organizations, importers, and exporters. In the context of Indian business houses, trade finance emerges as a crucial source of funding, offering a lower default rate compared to traditional loan facilities. Its reliance on the business strength and historical performance of the debtor contributes to its low default rate.

India Trade Finance Market

Growth Drivers

Increasing Digitization of Trade Finance

Governments globally are investing significantly in constructing "digital public roadways" to facilitate business operations. Initiatives include streamlining processes like opening bank accounts and assigning unique identities to citizens. India's mobile phone penetration exceeding 100%, with smartphones constituting 50–60% of this penetration, enhances the government's efforts. This has transformed India's payment systems, available 24/7, progressing toward "contextual banking" or in-app purchases. Emphasizing consumer experience, businesses leverage smartphone adoption for direct interactions. However, digitalization demands substantial effort and expertise to enhance system architecture. In India, foreign multinationals optimize cash forecasting, liquidity, and FX exposure through digitalizing treasury functions and automating fundamental banking operations, enabling focused attention on strategic areas. The shift toward contextual banking aligns with the broader landscape of digital transformation.

Challenges

Rise in Trade Wars due to Escalating Geopolitical Tensions

The growth of the India Trade Finance Market faces obstacles amid escalating trade wars. The Global Economic Prospect by the World Bank reveals a worldwide economic slowdown attributed to lower-than-expected international trade and investment, particularly affected by ongoing trade tensions, notably between the United States and China. The imposition of tariffs and retaliatory measures disrupts global trade, adversely affecting economies globally. Directly impacted by heightened uncertainties and protectionist measures, the India Trade Finance Market witnesses a decline in cross-border transactions. This situation underscores the necessity for strategic approaches, emphasizing reliance on international conventions such as the WTO dispute settlement mechanism, to navigate and mitigate challenges arising from ongoing trade conflicts.

Impact of COVID-19 on India Trade Finance Market

COVID-19 pandemic had a mixed impact on the India Trade Finance Market. Preceding the pandemic, the trade finance sector thrived, bolstering global commerce and economic expansion through the adoption of digitalization trends. Nevertheless, challenges induced by the pandemic, such as supply chain disruptions, manufacturing standstills, and the prevalence of remote work, detrimentally impacted payment cycles and the accessibility of trade finance credit. This crisis laid bare vulnerabilities in traditional paper-based processes, instigating a transformative shift towards digital solutions. Concurrently, in response to the pandemic, trade and commerce operations increasingly embraced remote management, employing diverse electronic devices like optical character recognition (OCR), QR codes, and RFID readers. Governments and international organizations intervened to bolster trade finance, expediting the adoption of technology and reshaping trade policies. Despite setbacks, the industry demonstrated remarkable adaptability, underscoring the pivotal role of flexibility, preparedness, and collaboration in navigating future uncertainties. Going forward, the insights gained from the pandemic emphasize the significance of utilizing technology and innovation to continue shaping the trade finance landscape, guaranteeing its adaptability amid contemporary challenges.

India Trade Finance Market

Segmental Coverage

India Trade Finance Market – By Product Type

Based on product type, India Trade Finance Market is divided into Commercial Letters of Credit, Standby Letters of Credit, and Guarantees segments.

India Trade Finance Market – By Provider

On the basis of provider, the India Trade Finance Market is bifurcated into Banks and Trade Finance Houses segments. The bank segment holds a higher share in the India Trade Finance Market by provider. Banks are progressively employing digitization, blockchain, and other technological advancements to streamline trade finance procedures, diminishing paperwork and transaction durations. Collaborating with fintech firms, banks are enhancing their trade finance services, aiming to broaden their market presence. With businesses seeking tailored solutions and guidance, banks are poised to play a pivotal role in structuring and facilitating trade finance transactions, thereby fueling segment growth.

India Trade Finance Market – By Application

By application, the India Trade Finance Market is split into Domestic and International segments. The international segment holds a higher share in the India Trade Finance Market by application. International trade finance plays a pivotal role by providing specialized financial solutions that bridge gaps in time, distance, and currency, making it the preferred choice for facilitating large-scale, cross-border trade. Its significance lies in addressing the complexities of international transactions and ensuring the seamless flow of goods and services across borders, contributing significantly to the overall growth and efficiency of the market.

India Trade Finance Market – By End User

By end user, the India Trade Finance Market is divided into Traders, Importers, and Exporters segments. The importers segment holds the highest share in the India Trade Finance Market by end user. Importers, as primary instigators of trade interactions, acquire goods and raw materials from diverse nations to fulfill domestic requirements. In the facilitation of these transactions, importers necessitate financial instruments guaranteeing supplier security, on-time delivery, and effective handling of currency variations and payment uncertainties. Integral to the domain are import financing instruments such as letters of credit, open account financing, and trade credit insurance. These mechanisms are crucial in guaranteeing the seamless completion of international trade transactions for importers.

India Trade Finance Market – By Region

Regionally, the India Trade Finance Market is segmented as North India, South India, East India, and West India.

Competitive Landscape

Major players operating in India Trade Finance Market include ICICI Bank, State Bank of India, HDFC Bank, Axis Bank, Kotak Mahindra Bank, BNP Paribas, and HSBC Holdings. To further enhance their market share, these companies employ various strategies, including mergers and acquisitions, partnerships, joint ventures, license agreements, and new product launches.

Recent Developments

• In May 2023 - Deutsche Bank won The Asset Triple A Treasurise awards in the Asia Pacific. The bank secured a total of 68 awards, including Best Risk Management Bank, Best Structured Trade Finance Bank, and Best in Treasury & Working Capital for New Economy clients.

• In January 2023 - M1NXT, an Indian trade financing firm, tested the International Trade Financing Services (ITFS) platform to enhance its trade finance offerings. ITFS aimed to facilitate early payments at lower interest rates for small businesses involved in exporting goods. The company actively engaged with national and international banks to enhance liquidity for Indian exporters.

Scope of the Report

By Product Type

• Commercial Letters of Credit

• Standby Letters of Credit

• Guarantees

By Provider

• Banks

• Trade Finance Houses

By Application

• Domestic

• International

By End User

• Traders

• Importers

• Exporters

By Region

• North India

• South India

• East India

• West India