Banks seek clarity on reverse mortgage

Banks propose to seek clarity from the Reserve Bank of India (RBI) on the risk weights that should apply for reverse mortgage loans.

At present, the risk weight for real estate sector apply to reverse mortgage loans, which is calculated at 150 per cent of the value of the loan. A section of the bankers feel that the risk weights are high.

Bankers feel that the risk weights for small size loans should be on a par with that applicable on priority sector loans, which is 75 per cent of the value of the loan. Housing loans up to Rs 20 lakh are classified under the priority sector.

"We asked for a clarification from the RBI on what should be the risk weights on reverse mortgage loans," said a senior official of Bank of Baroda at a seminar on reverse mortgage organised by National Housing Bank and Tina Ambani's Harmony for Silvers Foundation.

Reverse mortgage allows senior citizens with inadequate income sources to mortgage their own homes for a monthly stream of income for up to 15 years.

At the end of the reverse mortgage period, in case the senior citizen is alive, then he or the heir, will have the option of retaining the house after paying the principal plus interest to the lender or the lender can sell the house and pay the owner the difference between the amount due and the sale price.

Finance Minister P Chidamabaram, in his 2007-08 Budget, had stated that NHB will introduce a 'reverse mortgage scheme' for senior citizens.

After the reverse mortgage guidelines introduced by NHB, several banks besides Deewan Housing Finance have launched the scheme for senior citizens. The banks, which have launched the scheme, are Punjab National Bank, State Bank of India, Bank of Baroda, Allahabad Bank, Indian Bank and Axis Bank.

National Housing Bank (NHB) Chairman S Shridhar said that the reverse mortgage scheme though well structured has taxation, valuation and legal issues.

The housing regulator has written to the Central Board of Direct Taxes to see that the income, which is a loan to the senior citizen, is exempted from Income-Tax.

"There has to be some amendments to the I-T laws. Besides, the issue of how can the banks get their money back if the senior citizen passed away needs to be addressed. The government of New Zealand is drafting a law to ensure unhindered access to reposession of the house after the senior citizen passes away," said Shridhar.