Reverse mortgage a necessity

Our Chennai Bureau

Banks should not be hasty in cutting down property valuations in the current downturn, according to Mr Arun Ramanathan, Finance Secretary, Government of India.

In the context of the reverse mortgage scheme that supports the financial needs of the elderly, he said banks need to be careful on valuations which are done once in five years. In the current economic situation re-evaluating property could be a setback, especially for the elderly. While India has the demographic advantage with nearly half its population below the age of 25 years, the number of people over 65 years equals the population of Canada. The “numbers are large and disquieting” and India needs social systems that support the aged.
Barriers to scheme

Reverse mortgage supports the elderly by allowing them to use their house property to raise a loan to meet their financial requirements. But social barriers and mindset prevent the scheme from taking off in a big way.

Addressing a seminar on consumer issues in housing and housing finance, he said the Government was looking at a number of guidelines and regulation for the housing sector, including an ombudsman. The National Housing Bank has drawn up the guidelines which are under consideration. Minimum benchmarks of service are also needed for builders and lenders, he said.

Mr S. Sridhar, Chairman and Managing Director, National Housing Bank, said that the bank was trying to develop a uniform standard for valuations. A committee, including the Indian Banks Association and the School of Architecture and Planning, New Delhi, are drawing up the norms. Valuations based on these standards would soon be essential for transacting with public sector banks.

The National Housing Bank as a regulator of housing finance companies is looking at various measures of consumer protection, which include creating a common forum of banks and housing finance companies which would eventually evolve into a self-regulatory organisation. Later this year, the first batch of independent mortgage counsellors would earn their diplomas in home loan counselling. These counsellors who would have gone through a curriculum framed by the NHB would advise potential home loan borrowers in making an informed decision on various schemes of home loans available in the market.

Public sector banks have cut down on home loan interest rates to sustain flow of credit and even housing finance companies that have a higher cost of funds have managed to pare home loans, he said.
Easing credit flow

Mr M. S. Sundararajan, Chairman and Managing Director, Indian Bank, said public sector banks have done their best to ease the flow of credit to home loan borrowers. Indian Bank has seen a 25 per cent growth in home loans in 2007-08 and expects to see 20-22 per cent in 2008-09. If there is a drop in disbursements it is only because customers are ‘sitting on the fence.’ The banks have eased and speeded up the process of home loan disbursement. Home loan off-take is more a function of service than interest rates.

Banks are now competing to disburse home loans and now offer value-added services such as insurance linked home loans and restructuring of home loans to support those hit by the downturn, he said.

Source