Film Insurance & Financing in India

Details

Themes: Financial Markets
Period : 1998 - 2000
Organization : UTI India
Pub Date : 2002
Countries : India
Industry : Financial Services

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Case Code : FINC012
Case Length : 07 Pages
Price: Rs. 200;

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The Problems Contd...

Analysts remarked that the financing and piracy problems combined with the issues of lack of transparency in operations, disorganized functioning, frequent cost overruns and no physical assets being offered as collateral, resulted in banks and financial institutions shying away from financing film production.

Ram Gopal Varma, the maker of blockbusters such as 'Rangeela' and 'Satya,' said, "All film makers get financial support from private financiers with whom they have mutually beneficial relationships. Bollywood at the moment is not ready for institutional finance." Producers claimed that they could not afford to bring in transparency, as it would entail revealing certain secret deals like actual payments to film stars and the amount of profits made per film (most of which usually remained unaccounted). Also, as the producers were used to getting huge sums of money without any documentation and collateral, they seemed to be reluctant to go through the process of preparing reports and other lengthy procedures.

The Solutions

In December 2000, a Joint Institutional Committee on Financing Entertainment Industry submitted an interim report that laid down certain norms for offering financial assistance to the film industry. The committee headed by the Department of Banking-Ministry of Finance, had Industrial Finance Corporation of India (IFCI) and Industrial Development Bank of India (IDBI)⁴ as its members. The committee's recommendations included:

• Institutions should extend finances only to corporate entities.
• Besides negatives, music rights, satellite TV rights and overseas rights must also be considered as security.
• Insurance companies must extend insurance cover for films and develop more products for the industry.
• When financing a single film, the duration of advance may be restricted to between 6 and 18 months.
• Banks and FIs should work together with producers to evolve standards for financing and insuring films.
• Creating a film industry-rating agency by pooling people from banks/FIs, eminent filmmakers and experts in the media sector to judge a filmmaker's credentials.

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4] IDBI and IFCI are development finance institutions.