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RBI lifts cap on film financing by banks

BS Banking Bureau

The Reserve Bank of India has lifted the Rs 100-million cap on film financing by banks. In a circular to all commercial banks, the central bank stated that it has reviewed the guidelines issued in May last year.

"It has been decided to withdraw the stipulation that banks should not finance projects where the production cost exceeds Rs 100 million," stated the RBI.

The central bank, however, said there would be no change in the extant instructions regarding the proportion of project cost, which can be financed by banks. Banks are permitted to lend up to 50 per cent of the cost of total film budget.

Bank boards have also been directed to fix an overall exposure limit to the industry and ensure that advances are distributed over a reasonable number of films so that the risk is adequately spread.

Indian banks incidentally have yet to take the plunge in film financing. This is despite Industrial Development Board of India having financed a number of films till date. Banks are skeptical over such investments as they feel that there are no guarantee for the success of a film. Further, apprehensions mount among bankers as there is no guarantee that a film will be completed on schedule within the budgeted amount.

At the same time, Indian film makers are not too excited about availing finance from institutions and banks even though the cost of finance works out cheaper at around prime lending rate plus 4 per cent.

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