India's IP Financing Challenge: Why Banks Hesitate to Lend Against Intellectual Property

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 exp