bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Shirish Nadkarni

Behind all  the glitter and glamour, Bollywood used to carry the stain of its  links to India's underworld, which provided the slush money  for financing Hindi screen blockbusters.

Slowly though, India's film industry - the world's most prolific - is coming clean, thanks to traditional sources of funds, such as  initial public offerings.

Bollywood Inc is slowly coming into its own.

In the final two decades of the  last century, Mumbai's mafia dons handed out the funds that went into the making of  films. Everybody knew about it, but  avoided discussing it  in polite society.

The authorities finally acted on  on January 9, 2001, with the Mumbai police taking film producer and financier Bharat Shah, also a leading diamond merchant, into custody  for alleged links to gangsters.

Shah's arrest followed an investigation into his film Chori Chori Chupke Chupke  amid allegations that it had been funded by  gangs.

For years, India's criminal syndicates used the Hindi film industry for money laundering.  In exchange,  the dons retained the bulk of the film's distribution rights.

They had their own lists of saleable actors and actresses, and decided who should star in their films. Those who went against their will were threatened and intimidated.

In the lead-up to the  Shah trial, some  actors came forward and accused the dons of criminal intimidation. But, faced with clever lawyers (and, some claimed, after tough phone calls), the stars  rescinded their accusations.

Unlike several of her  colleagues, however, actress Preity Zinta stuck to her guns, revealing  how she had received threatening calls from the underworld while  shooting Chori Chori Chupke Chupke in 2000.

Shah  spent 16 months in jail until his release for lack of  evidence.  But his brief incarceration proved a deterrent to other producers  against approaching the dons for film finance.

Today,  untainted finance for films is more readily available; and the estimated 2.5 billion rupees  ($444.5 million) required for films  last year came from what are now referred to as 'non-traditional sources' - as distinct from traditional sources such as  the producer's contribution, distribution pre-sales and private financiers.

According to a recent study by the fledgling Yes Bank, what has increased sharply is private equity, not so much institutional lending.

'The inflow of non-traditional finance should grow further this year, given several big films that feature such funding component,'  said Sunir Khetarpal, country head for entertainment and media banking at Yes Bank.

The highly successful  film Black used non-traditional funds.  The Rising, Marigold and Krish - as yet unreleased or in production - all fall in the same category.

'These films alone would account for 500 million to 600 million rupees of non-traditional financing in 2005, not to speak of Bollywood's smaller films, which is where a chunk of last year's inflows actually went,'  Mr Khetarpal said.

At least one big production house, Ronnie Screwvala's UTV,  followed in the footsteps of Subhash Ghai's Mukta Arts  and Ekta Kapoor's Balaji Telefilms; and went public this year.

Among the popular non-traditional fund sources  are loans from banks and financial institutions;  initial public offerings,  or venture capital or institutional private equity; individuals funded  via venture capital or private equity; music  firms and television  broadcasters.

Yes Bank has classified films into low-, medium- and high-grade movies  with budgets of under 10 million rupees, 10 million to 20 million rupees and more than 20 million rupees.

Last year, there were 177 Hindi film releases composed of 55 low-grade, 33 medium-grade and 89 high-grade movies. Of last year's releases, 44 high- and medium-grade films used non-traditional funds, compared with six in 2001,   Yes Bank said.

In effect, non-traditional funding covered 36 per cent of all high- and medium-grade Hindi films last year, from 6 per cent in 2001.

Yes Bank estimates  non-traditional funds for Hindi films have risen from 485 million rupees in 2001 to 2.52 billion rupees last year.

Last year,  annual growth  slowed to 39 per cent for a total of 2.52 billion rupees. Mr Khetarpal attributed this to a higher base in 2003. For the 44 films  made last year using non-traditional funds, the leading source of cash was private equity from individual investors, comprising 64 per cent of the total.

Listing  proceeds came second at 16 per cent, against 83 per cent in 2001, largely because there were more  non-traditional fund  sources.

'IPO funding should gain impetus in 2005, with UTV having gone public and Adlabs reported to be funding four films,' said Ashok Kapur, director of Yes Bank.

The share of institutional lending had been on a roller-coaster ride, from zero in 2001 to 36 per cent in 2002, then 24 per cent in 2003 and a mere 7 per cent  last year.

'This could either mean  a larger number of projects are being funded through the equity route, or - given the need for a stringent track record and much paperwork - the producers are either unable or not very keen on seeking institutional loans,' the study  said.

Last year, about 25 per cent  of the 86 per cent of film projects financed  non-traditionally  had financing of less than  80 million rupees - largely because most of the  sources were new  players who preferred films with smaller budgets.

Experts say  the opening up of these fund sources  will only crank up Bollywood's movie machinery.

And instead of dark basements and damp backrooms, the venues for cobbling together  India's movie budgets have shifted to the offices and boardrooms of banks, financial institutions and venture capitalists.



Bollywood comes clean via institutional funds