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| Home > Film Financing & Insurance
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| | Film Financing & Insurance
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The basic objective by the banks is to provide finance for production of feature films as defined under the Cinematograph (Certification) Rules, 1983. Advertisement films, short films, documentaries, etc. are not eligible for financing. In order to be eligible to be financed by a bank, it is required that the former should be a corporate entity, promoted by reputed producers, backed by established directors & other technicians and possessing satisfactory track record. In case the entity is recently corporatized, the track record of the main promoter(s) is considered.
The bank is obligatory to assist the entity for financing not less than Rs. 2 crore and not exceeding 50% of the estimated cost of the film. After the financial assistance, the entity is bound to repay the amount normally within a period not exceeding two years. However, the schedule of repayment decided on case-to-case basis depending upon the timing and quantum of sale proceeds from distribution agreements/music rights etc. and expected streams of cash inflows.
Security
The following are conditions to be fulfilled by the producer in order to be financed by the bank for the film.
Letter from film processing laboratory-conveying rights on the negatives of the film in favour of IDBI.
Assignment of all agreements and Intellectual Property Rights (IPRs) in favour of IDBI. IDBI to have right of negotiation of valuation of all IPRs.
A Trust & Retention Account (TRA) will be maintained for all capital as well as revenue inflows and outflows. The receivables on sale of all IPRs shall be credited to TRA. The modalities of TRA will be worked out to the satisfaction of IDBI. A No Objection Certificate (NOC) from all concerned parties for the TRA arrangement will be required. IDBI shall have first charge on the TRA.
First hypothecation charge on all the tangible movable assets under the project.
Personal guarantee(s) of the producer(s).
Assignment of existing rights like music, video, internet, CD, DVD rights, library of old hit films, etc.
The film to be comprehensively insured.
The borrower would be required to obtain completion bond guarantee from such agencies. Till such time the guarantee is made available, the risk in this regard would need to be mitigated suitably to the satisfaction of IDBI.
Procedure for Sanction of Assistance
The complete application will be submitted by the bank to an Advisory Committee for screening the proposal for financing. Wherever necessary, the bank may refer the proposal to a group of experts for guidance and expert advice. The borrower will enter into an agreement with the bank, after it has conveyed its acceptance of the terms and conditions of sanction communicated by the bank.
Disbursement Expenses during the pre-shooting stage to be met from the promoters` contribution. The assistance from the bank will be disbursed during shooting and post-shooting stages. Amount of disbursement will depend on the total budget of the film, progress and shooting/processing of the film, withdrawal schedule and timing of the equity contribution, compliance of various terms and conditions of the letter of sanction.
Monitoring the bank to have the right of appointment of specialized agencies for monitoring the timely shooting/processing of the film and assessing the reasonableness of the expenditure incurred, etc.
Since 1931, when talkies were first introduced in India, the film industry has produced more than 67,000 films in more than 30 different languages and dialects. In 2001, the industry produced 1,013 films making it the world`s largest feature film producer. The majority of films are made in the South Indian languages of Telugu, Tamil and Malayalam, but Hindi-language films take the largest box office share. The industry draws its revenues from: domestic theatrical sales (2001: 36 billion rupees); overseas rights (2001: 5.25 billion rupees); music rights (2001: 1.5 billion rupees); television and video rights (2001: 2 billion rupees); corporate sponsorship and merchandising (2001: 0.01 billion rupees). The total revenues of the industry from these sources are estimated at 45 billion rupees.
The development of the Indian Film Industry from its golden era was very different and much simpler than it is today. Due to the immense growth in technology and the entrance of Hollywood, now making a film involves a huge sum of money and depends on several contingencies. Huge sets, highly risky stunts, sensitive equipments, a huge amount of salary paid to the actors and a lot other factors, has made Indian Films a very risky business. These factors demand some kind of mechanism through which a producer can be assured that, in case of these contingencies he will be indemnified. These were the same reasons as the concept of Film-Insurance was introduced in the foreign film industry. Thus, this concept has been introduced even in India. Insurance companies need to negotiate the potholes effectively because if all goes as per planned it can prove to be a fast growing industry.
It was felt that paying a premium of 6% of the production cost, as is prevalent abroad would be too steep for Indian film producers. However, as time has passed premiums have dropped to as low as 1%, as more and more producers opt for cover. For example if movies were being made at a budget of Rs. 30 million, the total insurance premium payable would be Rs. 500,000 at the rate of approximately 1.5%. With 700-800 films being made per year totally across India, the size of the film market in India is estimated at around Rs. 48 million or approximately 1 billion US dollars and even if 50% of these films (Rs. 24 million) are insured at anywhere between 1.0%-5% the total premium will be anywhere between Rs. 0.24 billion to Rs. 1.24 billion - a good start for a emerging industry if it happens.
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