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Since 1st March, 1999
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Biplab Banerjee spent nearly all his life savings on his wife’s cancer treatment but she died late last year. Today the 65-year-old childless widower draws a meagre pension and has no other source of income. “I barely manage my day-to-day expenses. If I fall ill, I will have no money for treatment,” he says, anxiety writ on his face. Nevertheless, he feels uncomfortable each time someone advises him to sell his house in Santoshpur in south Calcutta — where he has been living for the past 15 years — and rent a flat. “I hate the idea because I have been living here for so many years.” There are sentimental reasons too. “My wife spent her last years here. The memories are too powerful,” he says.

It is to cater to such problems of senior citizens that the government announced the Reverse Mortgage Loan (RML) scheme in its budget this year in February. The RML can be obtained only by those who are more than 60 years old and is applicable for only residential properties. The basic aim is to monetise the house as an asset. Since senior citizens like Banerjee would require liquid assets to meet their daily needs, they have the option of mortgaging the house they are residing in as titleholders to a bank or a housing lender. In return, the lender would make payments — in a lump sum or periodically as agreed with the borrower for a period of 15 years or till the death of the borrower, whichever comes first.

Following the guidelines of the government-owned National Housing Bank (NHB) issued in April, banks have either implemented or are in the process of implementing RML schemes.

The Dewan Housing Finance Corporation Ltd (DHFL) in Maharashtra and Punjab National Bank (PNB) have implemented the scheme under the names, Saksham and PNB Baghban, respectively. Lending institutions such as ICICI, Bank of Baroda, Oriental Bank of Commerce, LIC Housing Finance and HDFC plan to come out with schemes of their own shortly.

One great advantage for borrowers is that they are not required to service the loan during their lifetime. The lender recovers the loan amount including the accrued interest on the death of the borrower by selling the property and the rest of the amount is returned to the heir of the borrower. The spouse of the borrower can continue to stay in the house even after his/her death. The borrowers also have the option of repaying or prepaying the loan amount as and when they desire.

The amount of loan depends on the market value of the residential property, as assessed by the lender and also the age of borrower(s), and prevalent interest rate. The lender will also re-value the mortgaged property at least once in five years and the loan amount may be revised.

“While senior citizens can cash in on soaring property prices without selling the property, lenders, on their part, can be comfortable while striking a deal with senior citizens, as their needs are focussed and the scheme tailor-made,” says R. Bupathy, former president of the Institute of Chartered Accountants of India.

But a combination of traditional mindset and apprehensions about the guidelines of the scheme might hinder what is one of the most successful schemes aimed at the elderly in various countries of the world such as the US, UK , Australia and Japan .

“I think it is a good scheme, but it has its share of problems,” says Anup Khosla, chief financial officer, Helpage India, Delhi. He feels the biggest hurdle lies in that the elderly in our country always believe in leaving some property behind for their children. “This is a cultural problem. Children in India also expect their parents to leave them the house they reside in after their death,” says Khosla.

The other problem with RML pertains to the taxation rules. The central board of direct taxes (CBDT) is yet to issue clear-cut guidelines on how it will treat the loan amount sanctioned to the senior citizens. But then, not everyone agrees that this is an issue. “The payments, monthly or otherwise, are only from a capital resource and not from any income source and cannot constitute income in the hands of the recipient. Income, if at all, will arise only on sale, as capital gain. If a property is taken over by a legal heir by discharging the lenders, there is no income to consider,” says Bupathy.

While PNB has sealed a few deals already, DHFL says that there has been a flood of enquiries. But senior citizens are exercising caution. “Since it is a new scheme, it may need some fine-tuning, and we might make some changes to the scheme according to the feedback we receive from our people on the ground,” says N.K. Chhatwani, general manager, retail banking, PNB.

According to Chhatwani, the loan limit of Rs 1 crore set by the bank, and also the 15-year lock-in period as per the NHB guidelines are some of the sore points. “There are some properties which are worth a lot more. So senior citizens residing on such properties cannot avail of the loan. That clearly is one problem,” says Chhatwani. There is yet another flaw. “The 15-year period is rather irksome for people who outlive that time span. Therefore enabling guidelines should be in place to renew the scheme with changes in the amount of disbursement,” says Bupathy.

Since the scheme has just been launched, problems are bound to crop up. “But they are not insurmountable,” says Chhatwani. Shivkumar Mani, head (marketing), DHFL, agrees. “I feel that the guidelines are fairly clear. It may take another two months to see if there are any problems that we may encounter while passing on these benefits,” he says.

Bupathy too exudes the same optimism. “As the life span increases in India, this product — instead of being a generalised one and if devised and designed to cater to individual needs and situations — will attract, in the course of time, a sizeable number of senior citizens.” Besides, since there are other banks set to announce their schemes, it would perhaps be wiser for senior citizens to follow the wait-and-watch policy.

Before applying for RML, senior citizens should do the following:

• Assess cash flow needs.
• Make a reasonable estimate of life expectancy and resource build-up for an estimate of the loan amount.
• Clearly state intention about gifting the property by settlement or bequeathing it by
doesn’t get involved in a dispute.

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