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M. Ramesh

CHENNAI, Oct. 2

TWO years after the Reserve Bank of India okayed institutional lending to the film industry, only very, very few banks have even done a study of financing films.

This is borne out by the replies that Business Line has consistently got from bankers to the question, "Would your bank be interested in lending to the film industry?" The answer has invariably been `We don't understand the business'.

The perspective would have been different if the bankers had said, "We've studied the business, but we've decided it is too risky for us". The nub of the matter is, therefore, practically no bank has attempted to learn the business. Are the banks then losing out a business opportunity?

Till date, no institutional lending, other than IDBI's Rs 100-odd crore, has gone to the film sector, although a clutch of banks have said they'd earmarked some money for this business. These include Bank of India, State Bank of Mysore and IndusInd Bank-Hinduja TMT combine. The total sum earmarked, is anyway, not more than Rs 300 crore. But none of them has actually done any lending.

These fact would seem to indicate that banks are ultra cautious in entering this area, although IDBI's precedent has been quite encouraging. Film industry experts point out that while there is indeed some risk in film financing, it is not as though the areas that banks traditionally lend to are risk-free.

They observe that the film industry could provide banks with good business opportunities, at a time when the credit offtake is poor.

The Indian film industry produced 1,013 films in 2001, as against 855 in the previous year. According to an estimate of the Federation of Indian Chambers of Commerce and Industry (FICCI), the total amount spent last year on producing films was about Rs 2,500 crore.

Estimates of collections from the films vary between Rs 3,500 crore to Rs 6,000 crore. The lower estimate is based on a capacity utilisation of 35 per cent and an average ticket rate of Rs 10, but industry experts, such as Mr G. Venkateswaran of GV Films, put the collections close to Rs 6,000 crore. These statistics give one clue — the industry, as a whole, is profitable.

Film producers, who have to borrow from unorganised sources in the absence of institutional lending, typically pay a 36 per cent rate of interest "payable in advance". In contrast, IDBI charged 16 per cent, and its recoveries, at least so far, have been 100 per cent. Film industry observers say a bank could easily get around 18 per cent.

But the question is, how to de-risk film financing? The film industry disagrees that there are no norms for assessing the viability of a film. First of all, the banker does not even wait for the film to become a success, to collect his money. Says Mr V. Suresh, Secretary, South India Film Chamber of Commerce, "We've been telling the IBA Committee that, until such time as the banking sector gains confidence in the film industry, banks could finance the production of a film and collect their money, even before film is released, from what the producer gets from the distributors. So, where is the risk of a picture failing?"

Of course, the matter runs a little deeper than that. The questions in the minds of the bankers are like: What if the producer does not pay the bank? What if the distributors don't pay the producers? What if the film production itself stops midway?

These are obviously genuine concerns, but that is where the banker's acumen in assessing a project comes into play. But broadly, the answer lies in the track record of the producer, the type of movie under production, the cast, music and special effects, if any.

Says Dr Akash Khurana, COO, Nimbus Motion Pictures, "There is a wide variety of approaches to lay off the high financial risks of the motion picture business (for a producer): Domestic and international co-productions, partnerships with investors, pre-sale agreements with broadcasters, distributor and exhibitor guarantees."

He points out that a banker could look at whether these have been done. He further observes that the practice abroad in film financing is for the banks to finance a package of films, rather than a single film. "In 99 per cent of the cases, banks ask for a completion bond," Dr Khurana says.

In sum, the essence of risk minimisation is to understand the industry well. If this is done, it does appear that there is a good business opportunity waiting at the bank's doorstep. But, film industry sources say, neither the banking industry nor the film industry would be getting anywhere if the banks keep saying, "we don't understand the business".

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