Distressed Assets Tokenization (DAT): India’s New Frontier in Alternative Investments

“Distressed assets are not the end of value — they are its rebirth. Through tokenization, we turn stagnation into liquidity, opacity into transparency, and crisis into a new class of opportunity.” By Manish Patel Founder & Chairman, Bharat Economic Forum, Tokenized Fundraising & Wealth Management Expert For Family Offices\HNIs\UHNIs

India is entering a new chapter in financial innovation. The surge of Non-Performing Assets (NPAs), coupled with reforms under the Insolvency and Bankruptcy Code (IBC) and the RBI’s asset securitization policies, has created a multi-trillion-rupee opportunity — one that remains largely illiquid and opaque.

Enter Distressed Asset Tokenization (DAT) — a transformative financial innovation that leverages blockchain technology to fractionalize, securitize, and democratize investment into India’s distressed asset market.

With India’s distressed assets estimated at over ₹10 lakh crore, and private capital increasingly eyeing high-yield alternative opportunities, DAT is poised to unlock massive economic value while reshaping how financial institutions, investors, and recovery agencies operate.

What Is Distressed Asset Tokenization (DAT)?

Distressed Asset Tokenization refers to the process of converting distressed or non-performing financial assets into digital tokens that represent fractional ownership in the underlying asset pool. These assets could include:

• Non-Performing Loans (NPLs) and restructured debt

• Real estate under insolvency or resolution

• Corporate debt under the IBC process

• Security receipts issued by Asset Reconstruction Companies (ARCs)

These tokens are then sold to investors via regulated platforms, giving them exposure to the recovery potential and future income streams of such assets — all recorded transparently on a blockchain ledger.

Why the Indian Market Is Ripe for DAT

1. Massive Supply of Distressed Assets

According to RBI data, India’s total gross NPAs across scheduled commercial banks exceeded ₹10.3 lakh crore in 2024, primarily in sectors like infrastructure, real estate, and power. The IBC has improved recovery mechanisms, but ARCs and banks still struggle with illiquidity and capital lock-in. DAT provides a new monetization path for these assets.

2. Regulatory Push for Securitization

In 2025, the RBI allowed the securitization of stressed loans, deepening India’s junk debt market and enabling innovative financing tools like tokenization. This move opens the door for digital instruments backed by physical distressed assets, compliant with RBI’s structured finance guidelines.

3. Digital & Blockchain Readiness

With the RBI’s pilot program for deposit tokenization and India’s commitment to Web3 innovation, tokenized financial products are now closer to mainstream adoption. Platforms like India INX and IFSCA (GIFT City) are already preparing frameworks for tokenized securities and alternative asset vehicles.

4. Growing Investor Appetite

India’s ultra-high-net-worth individuals (UHNWIs), family offices, and global alternative investors are increasingly shifting toward high-yield structured products and alternative investments that outperform traditional equity and debt markets.

The DAT Ecosystem: India’s Value Chain

Let’s break down the Indian DAT value chain — from sourcing to servicing and profit realization.

1. Sourcing the Deals

Distressed assets are primarily sourced from:

• Banks offloading NPL portfolios.

• ARCs like Edelweiss, JM Financial, or Asset Care & Reconstruction Enterprise (ACRE).

• Corporate debt under IBC resolution.

• Stressed real estate developers seeking liquidity.
  

Tokenization begins by creating Special Purpose Vehicles (SPVs) that legally hold these distressed assets. These SPVs then issue digital tokens representing ownership or participation rights.

2. Structuring and Tokenization

The process involves:

• Asset Valuation: Independent firms assess the realizable value and recovery probability.
  

• Legal Structuring: Compliance with RBI securitization norms, IBC provisions, and SEBI’s regulatory sandbox.
  

• Smart Contract Development: Automating payouts, voting rights, and asset governance through blockchain.
  

• Token Issuance: Investors receive fractional digital tokens representing a share in the recovery pool.
  

This structure enables small investors (e.g., ₹1 lakh–₹5 lakh minimum) to participate in high-yield distressed opportunities previously limited to institutional players.

3. Asset Servicing & Recovery

Once tokenized, the asset pool enters a recovery or resolution phase managed by professional agencies or ARCs.

• Cash flows from recoveries (loan repayments, asset sales, settlements) are credited to the SPV.

• Token holders receive dividends or profit shares periodically via smart contracts.

• Transparency is ensured through immutable blockchain records of each transaction and recovery.
  

This creates a trustless and trackable system — a major improvement over opaque ARC structures.

4. Profit Realization & Exit

Investors have multiple exit options:

• Hold to Maturity: Earn periodic yields as recoveries are realized.
  

• Sell on Secondary Market: Trade tokens on regulated exchanges.
  

• Capital Appreciation: Token values increase as asset quality and recovery rates improve.

Hypothetical Example: Indian DAT Investment Projection

Let’s take a practical example for the Indian market:

Parameter	Value
Investment Amount	₹10,00,000
Portfolio Type	Tokenized Stressed Real Estate & Corporate Debt
Expected Annual Recovery Yield	15–18%
Investment Tenure	5 Years
Payout Model	Quarterly recovery-linked dividends
Exit Option	Secondary market trade after 2 years

Projected Returns (5 years):

• Yearly compounded returns @16% → ₹21.05 lakh in 5 years

• Annualized ROI: ~15.9%

• Total gain: ₹11.05 lakh (110% growth)

In a market where traditional fixed deposits yield 6–7%, such instruments could revolutionize private capital participation in India’s credit recovery ecosystem.

Key Enablers of DAT Growth in India

1. ARCs embracing digital assetization to monetize portfolios faster.
   

2. Regulatory Sandbox approvals from SEBI and IFSCA for tokenized securities.
   

3. Blockchain-enabled recovery platforms for real-time investor reporting.
   

4. Public-Private Collaboration: Banks, NBFCs, and fintechs co-developing token issuance systems.
   

5. Global Capital Access: Indian DATs listed on platforms like GIFT City could attract global investors.

Challenges and Trade-offs

Challenge	Impact	Mitigation
Regulatory ambiguity	Uncertainty for retail investors	Structured via SPVs under SEBI sandbox
Asset valuation complexity	Difficulty in fair pricing	Use of third-party forensic valuators
Liquidity in secondary markets	Limited exit routes initially	Integration with GIFT City digital exchanges
Investor education	Awareness gap in India	Financial literacy & token market platforms

The Larger Vision: India as a Global DAT Hub

India has all the right ingredients — a deep distressed asset pipeline, tech-savvy investors, a reform-driven regulatory environment, and a thriving fintech ecosystem.

If implemented strategically, Distressed Asset Tokenization can:

• Unblock ₹10 lakh+ crore of trapped capital in NPAs.

• Create a new alternative investment asset class for Indian investors.

• Bring foreign capital inflows into India’s resolution ecosystem.

• Empower ARCs and fintechs to act as digital asset recovery managers.
  

With the right public–private collaboration, India could become Asia’s largest secondary market for tokenized distressed assets by 2030, much like how Singapore became the fintech hub of Southeast Asia.

One Thing For Sure : The Future Is Tokenized

Distressed Asset Tokenization isn’t just an innovation — it’s a financial renaissance. By merging the discipline of structured finance, the power of blockchain transparency, and India’s growing digital infrastructure, DAT can fundamentally transform how capital recovery and investment coexist.

As India builds its identity as a Viksit Bharat, solutions like DAT are not only about financial returns — they are about restoring trust, efficiency, and inclusivity in the nation’s financial ecosystem.

The success of DAT in India will depend on thoughtful regulation, institutional adoption, and investor education. The first movers — whether ARCs, fintechs, or investors — will define how India captures one of the most significant wealth creation opportunities of the coming decade. By Manish Patel Founder & Chairman, Bharat Economic Forum, Tokenized Fundraising & Wealth Management Expert For Family Offices\HNIs\UHNIs