India is creating IP, but why can't it be financed?

A small manufacturer with land and machinery can walk into a bank with conventional collateral. The bank comfortably lends to the manufacturer. However, when a technology company having a little more than a patent portfolio, software, trademarks and the people who created them walks into the same bank, it is hesitant to grant a loan against its intellectual property asset. When this happens, it worth wondering how is India going to be an IP-based economy?

To understand the challenge better, let us travel back in the history and discuss an online auction of April 2016 that was opened in Mumbai. What was being sold was once one of India's best-known airline brands: Kingfisher Airlines. The trademarks included the familiar logo, the flying bird and the tagline Fly the Good Times.

17 banks led by the State Bank of India had set a floor price of about ₹367 crore. A global consultancy had reportedly valued the same trademarks at more than ₹4,000 crore a few years earlier. However, nobody bid and the auction ended without a single offer.

It is tempting to draw a simple conclusion from that incident that intellectual property is not good collateral for a bank loan, but it is not a good lesson. It should be kept in mind that trademarks were not the foundation on which the banks had originally lent money to the airline. The banks had already extended thousands of crores in ordinary working capital and term loans. The trademarks were subsequently offered as additional comfort when the exposure was already in trouble. And when the airline stopped flying, the value of an airline brand naturally collapsed with it.

The problem, therefore, was not simply that the trademarks were “bad assets”. The problem was that when the lender needed to recover its money, it had to find a buyer for those assets at the worst possible time.

Further, India does not appear to have an ecosystem that allows intellectual property to work as a collateral and things get even more complicated with patents.

India’s patent and trademark filings have grown drastically. In 2024–25, the Indian Patent Office received 110,375 patent applications, of which 68,201, or nearly 62%, were from residents. It also received a total of 552,190 trademark applications. However, in 2024 and 2025, India paid out roughly 1.74 billion dollars for permission to use foreign software licences, technical collaboration and brand royalties, and earned back a small fraction. This indicates that Indian companies and entrepreneurs are increasingly creating, protecting and aiming to monetise their intellectual property.

But, obtaining an IP is only the beginning. The major question is how does the system allow it to be recognised as an asset. If a bank does not know how to calculate a patent’s worth and the applicant has no means to mortgage the same, a real problem arises.

Indian laws allow intellectual property to be used as security. However, the important question starts once a borrower defaults. If the borrower defaults, can the bank turn that intellectual property into money in a predictable and legally enforceable way? With intellectual property, it is complicated and with patents, it is even more complicated.

In Canara Bank v. NG Subbaraya Setty, the bank had obtained an assignment of the trademark “Eenadu” from the borrower. The arrangement contemplated the bank using the mark and licensing it to others for royalty. The Supreme Court held that this arrangement is not legal under the Banking Regulation Act. However, the Court recorded that the trademark was not part of the security for the bank's loans in that case.

Thus, the judgment does not mean that a bank cannot take IP as a security. Rather, it raises a question: what can a lending bank do once it acquires the IP after default? A lender needs time to find the right buyer or licensee. It may need time to preserve the asset until the market recovers. It may need to keep the royalty stream alive by continuing licensing. If it is forced to sell immediately, it rarely gets the best price.

In India, there is no clarity as to who can value a patent. Simply asking the cost involved in developing a technology is not the right approach to value a technology. Variables that are generally included in a technology valuation includes future licensing income, market share, potential infringement scope, patent strength to withstand invalidation/revocation, competing technologies and the existence of potential buyers. The variable for trademarks may be different.

In other words, a lender is valuing not only a patent, but also future economic opportunity. India’s registered valuer framework does not provide a dedicated class for intellectual property and other intangible assets. That makes it difficult for a lender to obtain a valuation from a professionally regulated IP valuer. Thus, banks and lender would obviously hesitate to take IP as collateral.

Another challenge is ascertaining whether someone else also owns this same patent. A bank mortgaging land doesn't merely ask who owns the land. but also searches for existing charges and competing interests. The same treatment is needed for intellectual property as well. A lender should be able to answer simple questions such as: Who owns the patent? Has it been licensed? Has another lender taken security over it? Are there any restrictions on transfer?

Though Indian IP registries record most of the information, some information such as any restrictions on the transfer may not be available online and may be available with the IP owner only.

Another question a lender may ask is: what happens to IP during insolvency? Let’s assume a company owns a patent and licenses the technology to several businesses. Those licences generate ₹2 crore a year. A lender may be willing to lend against the expected royalty stream and then the company undergoes insolvency. What happens to those licences? Can they continue unchanged? Can they be rejected or disrupted? What exactly will a buyer of the patent acquire?

Another structural issue that is easily overlooked is tax. India has made some positive moves by providing a concessional tax regime for qualifying patent royalty income. Under the Income Tax Act, 2025, eligible resident taxpayers are able to opt for a 10% rate on qualifying royalty income from patents developed and registered in India, subject to statutory conditions. However, the financing structure and tax structure do not always fit together for an organisation. For example, businesses may consider separating valuable intellectual property from the operating company for financing or insolvency risk purposes. Moving the IP into a separate holding structure can, however, change the tax consequences and may affect access to the concessional regime.

Many countries have developed unique IP-finance markets and are enabling banks to contribute to this system.

South Korea, for example, has developed a substantial market for IP-backed finance, supported by government-backed valuation and guarantee mechanisms. China has used patent-pledge lending alongside risk-compensation mechanisms. Singapore has adopted arrangements in which the state shares part of the financing and valuation risk.

Japan has developed IP business evaluation reports designed to help regional banks understand the commercial significance of a company's intellectual property. These reports enable the banks to understand the nature of the company, its protected technology and the revenue model. Once the bank understands the business, the valuation becomes much more meaningful.

However, India is not alone in this journey of change. KfW Research, the research arm of Germany’s state-owned development bank, found that only around 3% of German small and medium-sized enterprises hold patents, while about 9% hold registered trademarks. At the same time, nearly 1 in 4 SMEs report that a lack of adequate collateral is a barrier in their loan negotiations. KfW’s chief economist has, therefore, suggested that it may be worth exploring whether patents and trademarks could also be used to secure bank lending in Germany.

Such lending is already taking place in countries including France, Sweden and the Netherlands. The broader point is that India is not alone in facing this challenge. Even advanced, research-intensive economies are still working out how best to unlock the financing potential of intangible assets. The countries that build the right ecosystem early may gain a significant economic advantage.

Indian Parliament’s Standing Committee on Commerce, in its report titled Review of the Intellectual Property Rights Regime in India, July 2021, called our IP-backed lending dismal and asked for a valuation mechanism that still does not exist.

The answer is not to tell banks take blind risks, but rather to create an ecosystem that makes risks measurable and manageable.

First, India should create a recognised professional framework for IP valuation. A clearly identifiable and regulated category of professionals capable of valuing patents, trademarks and other significant intangible assets would allow the establishment of credible methodology, professional standards and accountability.

IP security search should be made easier. A lender should not have to piece together information from multiple systems to determine whether an IP asset is already encumbered. A central system may be created wherein the organisations who wish to mortgage their IP assets can list it with all details, thus allowing a lender to perform a reliable search before lending. However, the highest level of confidentiality shall be maintained in such systems.

Third, India should adopt a state-backed guarantee mechanism for MSMEs and technology-driven businesses that do not possess large amounts of traditional collateral.

Fourth, the legislature should provide clarity in light of the concerns highlighted in Canara Bank v. Subbaraya Setty. A lender needs a clear framework explaining what it may do with IP after enforcement, for how long and under what conditions, without turning the bank itself into an IP operating business. The objective should be to give the lender enough time to preserve and realise the value of the asset rather than forcing an immediate sale at a distressed price. The Supreme Court's decision itself makes clear why the distinction between IP held as security and IP acquired for exploitation matters.

Another aspect that India can quickly borrow is what Japan is doing - developing and providing business innovation reports that could provide clear and crisp information to banks about the business and the role of IP in their business. This would enable banks to take more informed risks.

India has already built the first half of the ecosystem by encouraging innovation, patents and intellectual-property creation. The next challenge is commercialisation.

A patent should not become valuable only when it is licensed to a multinational or sold to a large entity. It should also be capable, where commercially appropriate, of helping an Indian entrepreneur obtain finance to build a business.

India needs to make intellectual property searchable, understandable, valuable and realisable. The objective is not to make every patent bankable; rather to make genuinely valuable intellectual property capable of being recognised as an economic asset rather than merely a certificate for a social media post.

Udit Malik is an advocate practicing before the Delhi High Court.

The views expressed in this article are personal.