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.