Why banks are financing Bollywood films?

For years, the world's largest film industry was the fiefdom of diamond and cotton merchants. In fact, seven years ago, Bollywood was financed by these traders, often charging hefty rates of interest. However, thereafter, the colour of money in the Mumbai film world was tainted by underworld fundings.

Although you still hear of a director here and an actor there getting calls from the Bhais, things have largely changed, for the better, in Bollywood after the government declared it an “industry” in 2000. As the industry progresses inexorably towards corporatisation, you hear less and less of a director going bankrupt because his or her movie failed at the box office and the money-lenders could not be paid back. One of the reasons could be the neighbourhood banks have begun financing Bollywood, although not in a big way.

Consider this: Exim Bank, which funded the industry to the tune of Rs 100 crore last year, has chalked out a plan to increase funding to Rs 300 crore this financial year. Among some of the films it helped finance are the Yash Raj Films' Ta Ra Rum Pum, Cheeni Kum, Honeymoon Travels Pvt Ltd, Kabul Express, Dhoom:2, Don-The Chase Begins, Fanaa, Bunty Aur Babli, Salaam Namaste, Veer- Zaara, Mangal Pandey - The Rising, Dhoom and Hum Tum. Exim Bank is also funding a slew of animation films that are yet to hit the silver screen.

The Indian film industry is the world's biggest, according to a Yes Bank report, if you go by the numbers. In 2004, there were 934 films certified across the country, with Hindi accounting for 245 of them. What's more, a staggering 3 billion people have gone to the theatre to watch movies, which is almost double the US market and three times that of the rest of Asia, says Exim Bank's website. However, the Indian film industry is considered to be the most complex and fragmented national film industry the world over for a simple reason that it comprises a cluster of regional film industries that include Hindi, Telugu, Tamil, Kannada, Malayalam, Bengali and others.

That Bollywood is going global is also evident from the fact that Exim Bank is increasing its stake in the industry- the bank finances only those films that carry some export value with them. Says SR Rao, executive director of Exim Bank: “We have been involved selectively in film financing as we clearly recognise the potential of such films to be commercially viable propositions operating in an international environment and to be in a position to generate foreign currency earnings in a global context.”

The other state-run bank that is into film financing is IDBI Bank. But it finances only feature films, not ad films, short films or documentaries. It can provide financial assistance of not less than Rs 2 crore and not exceeding 50% of the estimated cost of the film.

Meanwhile, save for these two major banks, no other private or public sector bank has come so far in a big way to finance films, thus leaving the industry to continue to be a privately funded one. When contacted by journalist, an HSBC spokesman said as a policy the bank does not do any kind of film finance.

The private sector bank, Yes Bank, has restricted its activities to providing advances to firms like Pritish Nandy Communications (PNC) and 'Studio 18'. While PNC's latest films include Just Married and Pyar Ke Side Effects, Studio 18 has ventured into co-production and distribution activities. As far as IndusInd Bank is considered, it says that it may enter the field sometime in the future, but has not chartered out any time schedule.

Says IndusInd Bank MD & CEO Bhaskar Ghose: “My bank had thought of going for film financing in 2001-02, but then we had to drop the idea, partly due to the fact that the film industry was not doing well at that time. Although we have not dropped the idea for the same as yet, we have no immediate plans,” while Dena Bank CMD PL Gairola admits that “barring financing quite a few tele-serials in the past, we've not done any financing for films so far”. Nevertheless, he clarified that the bank is open to any such proposals,”if there is a good star-cast”.

Normally, bankers charge a whopping interest of 16%-17% for the funding of a film. But the entry of Exim Bank into the sector has changed the situation as it has brought down the interest rate to some extent. “Exim Bank has changed the equation of film financing as they charge on LIBOR-plus 1 (London Inter-Bank Offer Rate) rates which is comparatively lower than the interest rate being charged by other banks and financial institutions that charge interest on MIBOR (Mumbai Inter-Bank Offer Rate), thus leaving behind a gap of nearly 200 basis points, which in simple terms means a difference of 1%-4% of arbitrage,” points out Khanna.

However, Exim Bank's ED Rao, has a different story: “We are in a position to provide US dollars which is LIBOR-linked because these films earn foreign exchange and therefore, they are well-placed to repay us in foreign currency.” Experts say it is surprising that banks are taking the road to caution because there is little risk involved for bankers in going for film financing as distributors and producers take the entire risk for a film.

Another important thing to note, claim experts, is that the bankers get their money back even before the release of a film. “But what worries the banks is whether the film will reach the silver screen in the first place as many films never see the light of day,” points out Gairola. Once a film hits the screen, there is little cause for anxiety. Reliance Entertainment chairman Amit Khanna explains that there are so many ways of making money after a film is released including merchandising, that a lot of risk is mitigated.

Another futuristic trend is that the concept of film insurance has also taken root with Subhash Ghai's film Taal. Insurance agencies like New India Assurance, United India Insurance Co. and others are in the fray.

Only, that insurance has nothing to do with the performance of a film as it covers only the loss incurred by a producer in case lead characters stay away from shooting or if there's an accident. There's clearly a long way before Indian banks can get into the producer's seat with confidence but a beginning definitely has been made in corporatised film-funding.