S Sridhar, CMD, Central Bank of India and chairman of the National Housing Bank, talks to Sucheta Dalal on reverse mortgage, the changing role of NHB and rejuvenating CBI. In the first part of a three-part series, we explore how reverse mortgage has evolved as a product
Sucheta Dalal (ML): At National Housing Bank (NHB), you are credited with developing a new reverse mortgage (RM) product, that is far superior to the earlier one, which was disastrous. Would you tell us about the process of developing the new product?
S Sridhar (SS): I wouldn't say that the earlier product was a disaster. It has worked. There are a lot of people who have looked at RM as a temporary loan. They are 60 and children are not yet that well settled. So they have looked at it as a temporary loan and hope that they will be able to repay it in 10 years and redeem the mortgage.
ML: So they see it as a loan against property?
SS: Absolutely. It is a loan against property, but there are two differences. RM is a limited recourse product, as against traditional loan against property which has unlimited recourse. We can only recover from the property and not the borrower's estate. That is why, from the regulatory perspective - whether it is NHB or the RBI (Reserve Bank of India), there is a concern that it must not be misused or the product will get a bad name. After all, there are senior citizens who very active in business and also very cunning and shrewd and there was a concern that people should not take money against property and use it to speculate in the stock market or something. This was a concern with the RBI and it was a valid one. It is a fact that when I was meeting senior citizen groups in Mumbai and Pune in connection with the product, there were people who asked questions like can we take a CC (cash credit) limit against property and draw against it? That is not the segment we are looking at. We are looking at people who don't have a pension - and they are a huge number in our country - but have invested in a house. And they want to live a little better life, since the quality of life comes down sharply after retirement. Yet, not everybody in that segment needs a loan either - so we recognise that it is a niche product, but we still have to create awareness about it.
Having said that, there has been a fair amount of loans that have been sanctioned (Until 31 March 2010, Rs1,413 crore has been sanctioned to 7,034 senior citizens through RM schemes which are being offered by 23 banks and two housing finance companies). Of this, Rs100 crore has been sanctioned under the new RM loan-enabled annuity, through 40 loans under the earlier scheme as well, but there are certain issues.
ML: What are these?
SS: One of the issues that came out as we worked on this product was that the RM product is psychologically resented by children. Many of them see their legacy going away. It is perverse, but many children do not want their parents to have a better life. This is not universal, but I did get this feedback even from parents. There are instances when the son or daughter-in-law will ask why they need more money or to spend on a holiday. So there is an element of psychological tension associated with this product. Another aspect is the attitude of the parents too. There are some who say, "My son and daughter don't treat me well," but they still say, "there is no way we can allow the house we have built to go to the bank." We explain to them that the bank getting the house is only the last recourse and the son can always repay the loan and get the house back. Here too, we have had cases where the parents said if the RM extended for 30 years, the loan amount would mount significantly and make it difficult for the son to repay the loan; so they preferred to tighten their belt and live with what they have. So there is a fair amount of cultural issue involved in RM.
Read in detail:‘Reverse mortgage is psychologically resented by some children’ says S Sridhar NHB chief - Moneylife: Personal Finance Magazine
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