INDIA: Reverse Mortgage Loan Scheme Getting Good Response

MUMBAI (Indian Express), October 24, 2007: Traditionally, retirement from active service in India is considered to be an end of active life. Sooner rather than later a retiree becomes entirely dependent on children. Finance Minister P Chidambaram's announcement of introduction of reverse mortgage products in this year's national budget speech, is now liberating seniors from that conservative mindset. Reverse Mortgage Loan (RML) is essentially for those above the age of 60 years, against security of their self-acquired, self-occupied houses. The loan is paid off by legal heir of the borrower or is recovered by the sale of the house. According to trends as seen by some leading banks which have introduced RML product, banks are receiving an overwhelming response from senior citizens. "Often the old are deprived of a holiday tour or are unable to make a purchase due to non-supportive children, or because of other commitments. Now these senior citizens can avail of a loan, and that too, without bothering about repayments in their lifetime," said Sangeet Shukla, chief general manager of the State Bank of India (SBI), while speaking to this newspaper. Encouraged by the National Housing Bank (NHB), several commercial banks including Punjab National Bank and SBI, have introduced RML products. Banks like the Axis Bank and ICICI and even co-operative sector banks like Kerala State Co-operative Bank are planning to announce RML products shortly. "A RML need not be repaid by the borrowers during their lifetime. They will continue to stay in their houses for lifetime. Thereafter, the legal heirs have an option to repay the bank loan and redeem the property. If this option is not exercised, the bank will sell the property, liquidate the loan and any surplus is passed on to the legal heirs," Shukla explained. The rate of interest on the Reverse Mortgage Loan varies from bank to bank, normally comparable to the rates on housing loans of that bank. State Bank of India's RML carries a fixed interest rate of 10.75 percent. Imtiaz Ahmed, AVP mortgages of Axis Bank expects a good demand for RML as most senior citizens do not have other options if they to raise capital. "In Western countries a retiree actually begins his second innings with a long holiday tour, or with some community activities. His Indian counterpart manages to live with his little interest or pension, and cannot think of enjoying any such liberties. We are encouraging senior citizens to avail a RML to fulfill their cherished dreams of retired life," Gita Srinivasan, working for a senior citizen welfare association, said. By Rommel Rodrigues/NS Economic Bureau Express Network Private Ltd.