India’s Intellectual Property Conundrum: Financing IP Assets
In the realm of traditional banking, a small manufacturer equipped with tangible assets such as land and machinery can secure a loan with relative ease. However, technology companies, despite possessing valuable intellectual property (IP) assets like patents, software, and trademarks, often find banks reluctant to extend credit against these intangible assets. This raises a pertinent question: How can India transform into an IP-driven economy if its financial institutions remain hesitant to recognize IP as viable collateral?
The Complex Landscape of IP Collateral
To delve deeper into this issue, we revisit an online auction in Mumbai from April 2016, where the iconic Kingfisher Airlines brand, including its recognizable trademarks, was put up for sale. Despite a floor price of approximately ₹367 crore set by 17 banks led by the State Bank of India, the auction concluded without a single bid. This incident might lead one to conclude that IP is unsuitable as collateral, but it’s critical to note that these trademarks were not the primary security for the original loans. The banks had already granted substantial loans based on traditional collateral, and the trademarks were offered as additional security when the airline was already in financial distress.
The challenge is not merely that IP assets are “bad collateral,” but rather that when financial recovery is necessary, finding buyers for these assets becomes particularly difficult during economic downturns. Furthermore, India’s current ecosystem does not readily facilitate the use of IP as collateral, especially when dealing with patents.
India’s Growing IP Landscape
India has witnessed a significant surge in patent and trademark filings, with the Indian Patent Office receiving 110,375 patent applications in 2024-25, 62% of which were from domestic applicants. Additionally, 552,190 trademark applications were filed during the same period. Despite this growth, India’s financial system struggles to support IP monetization. In 2024 and 2025, India paid approximately $1.74 billion for foreign software licenses, technical collaborations, and brand royalties while earning only a fraction in return.
The crux of the issue lies in the inability of banks to accurately assess the value of IP assets. While Indian laws permit the use of IP as security, the challenge emerges when a borrower defaults. The question remains: Can banks convert IP assets into liquid assets efficiently and predictably?
Legal Precedents and Challenges
The Canara Bank v. NG Subbaraya Setty case sheds light on the complexities of using IP as collateral. Here, the Supreme Court determined that the bank’s arrangement to monetize a trademark was not permissible under the Banking Regulation Act. However, the ruling clarified that IP can be held as security, raising crucial questions about the lender’s rights post-default.
The primary challenges include valuing patents accurately and ensuring clear ownership of IP assets. Unlike land, where ownership and encumbrances are easily verifiable, IP ownership may involve multiple stakeholders and competing interests. Moreover, the fate of IP assets during insolvency proceedings remains uncertain, complicating potential recovery for lenders.
International Lessons and Solutions
Globally, countries like South Korea, China, Singapore, and Japan have developed robust IP-finance ecosystems. South Korea’s market is supported by government-backed valuation mechanisms, while China employs patent-pledge lending. Singapore participates in sharing financing and valuation risks, and Japan provides IP business evaluation reports to help banks understand the commercial value of IP assets.
Even advanced economies like Germany face similar challenges, with only a small percentage of SMEs holding patents and trademarks. The broader consensus is that countries must develop ecosystems that unlock the financing potential of intangible assets, providing a competitive edge.
Recommendations for India
India’s Parliament Standing Committee on Commerce has acknowledged the need for an IP valuation mechanism. The solution requires an ecosystem where risks are quantifiable and manageable. Key steps include establishing a recognized professional framework for IP valuation, creating a centralized IP security information system, and implementing state-backed guarantee mechanisms for SMEs and tech-driven businesses lacking traditional collateral.
Furthermore, legislative clarity is essential, as highlighted by the Canara Bank v. Subbaraya Setty ruling. A defined framework should empower lenders to preserve and realize IP asset value without forcing immediate distressed sales. Additionally, India could adopt Japan’s approach by developing business innovation reports to provide banks with comprehensive insights into IP-driven businesses.
Conclusion: Building a Future-Ready IP Ecosystem
India has laid the groundwork for an innovation-driven economy by fostering patent and IP creation. The next step is commercializing these assets effectively. By making IP searchable, understandable, and valuable, India can enable entrepreneurs to leverage their IP for business growth, transforming patents into genuine economic assets rather than mere certificates of achievement.
Udit Malik, an advocate practicing before the Delhi High Court, expresses these personal views. They do not necessarily reflect those of any institution or organization.
