The Hindu Business Line : Budget may lift interest in reverse mortgage

Kolkata, March 18 Banks are looking at the incentives provided in this year’s Budget to boost the hitherto dormant reverse mortgage scheme in the country. The scheme, started a year back in India, has made little ground as of now.

The Finance Minister had announced in the Budget that tax laws would be amended to provide that reverse mortgage would not amount to “transfer” and the stream of revenue received by the senior citizen would not be considered “income”.

“This clarification will give a new lease of life to the scheme. Now we can at least provide specific responses to our customers’ queries. The tax-avoidance proposal in the Budget should boost interest in the scheme,” a United Bank of India official said.

“The Budget definitely has something in it for us to feel excited. We will now try to market the scheme from our senior citizen branches more aggressively,” Mr S.K. Goel, Chairman and Managing Director, UCO Bank, said.

Poor response

Though the scheme had been launched by United Bank of India in December 2007, not a single loan has been transacted till now, he said.

UCO Bank, which launched the scheme during the same period, also had not made a single loan under the scheme. Allahabad Bank has managed to extend around three loans under the scheme since April 2007, bank sources say.

Punjab National Bank, one of the earliest to launch the scheme, apart from State Bank of India and Dewan Housing Finance Ltd, in March 2007, has marketed only 12 reverse mortgage loans, each for a loan amount of 15 lakh on an average, a PNB official said.

Making it attractive

“We will now take the initiative to instal the scheme in our core banking system,” the United Bank official said. “We might consider modifying the scheme, making it more attractive to senior citizens,” the PNB official said.

The National Housing Bank had commissioned a study from the Hansa Research Group before launching a draft guideline for the scheme in August 2006, which estimated the market size for the scheme in India to be Rs 5,000 crore.

Under the reverse mortgage scheme, senior citizens above 60 years of age can avail themselves of loans in the form of a lumpsum or in the form of instalment payments in lieu of mortgaging the property ownership to the bank. The client will retain ownership rights to the property during his lifetime.

“The scheme is a huge hit in the US with around 3 lakh borrowers. Here in India we will have to look either for a situation where there are family disputes or childless couples as a potential client base,” the United Bank official added.