Reverse mortgages for senior citizens yet to gain momentum

Reverse mortgage was designed to provide a major helping hand to old people without a steady stream of income. In India there are around 7.71 crore senior citizens, most of whom have to bear a lot of difficulties in their old age due to inadequate financial resources.
Therefore reverse mortgage scheme was introduced but, is yet to find many though this year’s Budget granted income tax and capital gains exemption on the product.
Under this scheme banks give loan funds to senior citizens as per the value of their property. After the death of the client, the property belongs to the bank.

Up till March 31, PNB had sanctioned 96 such cases all over the country for Rs 38.81 crore. Whereas SBI its competitors in the segment had sanctioned to 6 up till March. Bank sources said however, SBI’s business has picked up in the subsequent months. In fact Syndicate Bank and Union Bank also launched the product over two months back.

An LIC housing finance official told FE that since it launched the scheme in March, there have only been enquiries. “Many senior citizens do not find it acceptable to mortgage their property in their old age. In these three months, not a single reverse mortgage loan transaction has taken place.”

Even though the business has been a slow starter till date, bankers are also cautious about the implications of the recent law cleared by Parliament. The Maintenance and Welfare of Parents and Senior Citizens Act, passed in December 2007, have made it compulsory for children and relatives to take care of parents in their old age. According to Maintenance Tribunals, to be set up under the law soon can ask the heirs of a senior citizen to pay up to Rs 10,000 a month for their maintenance.

According to some bankers this maintenance law can discourage senior citizens from taking to reverse mortgaging facility, which enables them to get a stream of income. K Balasubramaniam, deputy general manager, State Bank of India accepts that, “there may be a remote possibility of the legislation having an impact on the reverse mortgage business.”