Capital Finance sets up shop

The US-based Capital Finance has set up a shop in India to provide 'completion bond' services to Indian filmmakers. A 'completion bond' guarantees making of a film as per schedule and also facilitates flow of finance from banks.

Bobby Bedi, a Delhi-based filmmaker, holds a 26 per cent stake in Capital Finance India, sources said. Mangal Pandey - The Rising was the first film to be provided completion bond cover by Capital Finance.

Salman Khan-starrer Marigold is among the four other films for which the US-based company has provided completion guarantee.

The companies that provide completion guarantee play an active part in ensuring that the making of a film is as per schedule. They undertake a weekly due diligence exercise to monitor the flow of funds and detect any overshooting of the budget.

Typically, any financial institution/bank recovers the entire loan before the release of the film. However, the financial entity stands to lose if the film is not completed. If there is any loss of artistes or equipment, there is some insurance available to make up for the loss. Similarly, completion bond helps the bank financing a film project in recovering money even if the project is not completed.

Most of the domestic players prefer lending to producers with a proven, established track record. However, completion bond would help the lesser-known production houses in India to secure funds from banks.

Most film production companies in the country are family-owned and, therefore, rely heavily on informal sources. In recent times, a few production houses like Mukta Arts Ltd, Pritish Nandy Communications Ltd, Padmalaya Telefilms Ltd, UTV and Zee Telefilms Ltd have become corporatised and are able to raise funds for meeting their film-financing requirements," said a senior banker.

In India, bank-financing for film-making still has a long way to go. Even after five years of bank funds entering the tinsel world, film-makers have been successful in tapping only about 15 per cent of the Rs 3,500 crore (Rs 35 billion) organised funding they source.

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.

"Even now, the majority of film-producers continue to rely on the unorganised sector for obtaining funds. Therefore, there is a vast market yet to receive funds from the banking sector," said an analyst.

According to the Reserve Bank of India guidelines, banks can take exposure up to a maximum of 50 per cent of the total production cost of a film, and the total project cost must be not more than Rs 10 crore (Rs 100 million). The exposure, in normal cases, should be 35-40 per cent but could go up to 50 per cent in special cases.

The Indian film industry produces around 1,000 films every year, and the number is growing at a rate of 20 per cent a year. The industry boasts of as many as 400 production houses, of which 32 are corporate houses. But only a few of them have been able to access finances from the banking sector.