The Hindu Business Line : `Reverse mortgage scheme will take time to gain acceptance'

"It will take time for the concept to become institutionalised," says Mr Kapil Wadhawan, Vice-Chairman and Managing Director, Dewan Housing Finance Ltd.

Reverse mortgage is a stream of loan payments against the homeowner's net equity stake in the property. In this scheme, the lending institution gives the borrower a fixed sum of money on monthly basis. The borrower will be allowed to stay in the house as long as he is alive though the payment made will be limited to the tenure of the scheme.

DHFL was the first to launch the Saksham scheme on reverse mortgage in September 2006. Since then, the company has received around 150 enquiries and about 20 applications for loan, which are in the advanced stages of processing.

"India still has a strong joint family culture which creates a pressure on people desiring to go for such schemes," says Mr Wadhawan.

The housing finance company makes payments in the form of a lump sum amount or in equated monthly instalments depending upon the need of the borrower. The rate of interest on reverse mortgage offered by DHFL is 12 per cent while that for a classical home loan it is 11.75 per cent.

"The high rates of interest will have an impact on the payout which would in turn be very small," says Mr Wadhawan. The company assesses the value of the property and lends about 30 per cent of the value o to a customer in the age group of 60 years and about 60 per cent to those of 80 years and above.

The scheme will initially be targeted towards the urban customers. But Mr Wadhawan feels that though initially there will be a greater share of urban customers, it will have a drill down effect and slowly will cater to the needs of rural customers.

`Tough task'

Marketing the scheme will be a challenging task, feel some of the senior bankers. "It is difficult to market a reverse mortgage product as it targets the vulnerable section of society," says Mr Sambamurthy, Chairman and Managing Director, Corporation Bank.

He feels that the banks will not be able to use the aggressive methods of marketing and advertising, which they normally do in case of other loan products. The bank plans to roll out the product once the tax issues are resolved.

DHFL has adopted the method of counselling their clients through the senior citizens' association and other such forums. "We have got in touch with a number of senior citizens' associations and counselled the target audience about the advantages of the product," says Mr Shivkumar Mani, General Manager, Marketing, DHFL.

Customer profile

Talking about the profile of their customers, Mr Mani says, "Though we have received enquiries from people of all ages above 60, the application for loan has mainly come from people in the age bracket of 70 years and above. This is primarily due to the fact that people at that age are not involved in any kind of part time activities, like those in the age group of 60 years, so are practically devoid of any kind of fixed income."

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