Almost 60 per cent of film financing in India comes from informal sources, including the underworld, with interest rates as high as 40 per cent. The Indian film industry produces around 1,000 films every year, and the number is growing at a rate of 20 per cent every year.
The industry boast as many as 400 production houses, of which 32 are corporate houses. But only a few have been able to access finances from the banking sector.
"In India, most of the film production companies are family-owned and, therefore, rely heavily on informal sources. However, in the recent times, some film producers have corporatised their businesses and are able to raise equity from the public," said Jitender Balakrishnan, executive director, IDBI Bank.
The bank doubled its film-financing exposure limit to Rs 200 crore (Rs 2 billion) last month. Typically, banks are shy to lend to debutant film-makers and those who have not had box office success. Consequently, these film-makers source funds from unscrupulous agents.
A trade analyst said, "Banks are comfortable in lending only if the banner is big and the star-cast popular, as otherwise it is a risky proposition.
Though banks recover their dues before the release of a film, they fear the risk of films remaining incomplete. As per Reserve Bank of India's (RBI) directives, banks can take exposure up to a maximum of 50 per cent of the total production cost of a film.
So, the balance 50 per cent has to sourced from the unorganised sector funds, the analyst said. Bank of India, has offered a meagre Rs 1.5 crore (Rs 15 million) for the production of three films in more than five years since the state-owned bank first made its intentions to fund film-making known.
According to the bank's general manager (credit), S Sampath, said, "This industry continues to work in liquid cash. So, we run into many glitches like tax problems."
In recent times, many Hindi and some regional films have grabbed recognition in the international diaspora and earned foreign exchange. But the concept of extending loans for overseas distribution business is still at a nascent stage.
The only financial institution present in the space of overseas distribution of films is Export Import Bank of India, but the beneficiary so far has been just one Yash Raj Films.
"Given the vagaries of the film industry, it is important for us to learn the ropes of this industry. Hence, we have tied up with this group (Yash Raj), which has shown a good track record in the industry so far," said John Mathew, general manager (corporate banking & film financing), Exim Bank.
