Banks intend to request for clarity from the Reserve Bank of India (RBI) on the risk weights that should apply for reverse mortgage loans.
Currently the risk weight for real estate sector applies to reverse mortgage loans, which is calculated at 150 per cent of the value of the loan. A section of the bankers think that the risk weights are high.
Bankers are of view that the risk weights for small size loans should be on equivalence 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 organized by National Housing Bank and Tina Ambani’s Harmony for Silvers Foundation.
Reverse mortgage provides senior citizens insufficient income sources to mortgage their own homes for a monthly stream of income for up to 15 years.
In case senior citizen is alive, then he or the heir, at the end of the reverse mortgage period, will have the option of retaining the house after paying the principal plus interest to the lender or the lender will be able to 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 NHB gave the guidelines on the reverse mortgage, several banks besides Deewan Housing Finance 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 although well structured has taxation, valuation and legal issues.
The housing regulator has written to the Central Board of Direct Taxes to exempt the income which is a loan to the senior citizen, from Income-Tax.
“There has to be some amendments to the I-T laws. Besides, the issues 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 repossession of the house after the senior citizen passes away,” said Shridhar.
Monday, January 14, 2008
Wednesday, January 9, 2008
Budget to unveil credit-cum-interest subsidy scheme for EWS
The elections are due in 2009 and the government has started preparing platform for the elections. The current budget is likely to unveil a credit-cum-interest subsidy scheme for the economically weaker section (EWS). The poor might get a 5% interest subsidy on home loans which might leave the exchequer poorer by around Rs 1,600 crore annually. So it can be said that 2009 elections might help the aam admi’s dream of owning a house come true.
“The discount offered by banks and financiers would be met through interest subsidies provided by the government,” a housing ministry official said.
In November with RBI the National Housing & Habitat Policy announced schemes; the ministry is working on the protocols of the schemes.
“The Budget may define the salary brackets eligible for the interest subsidy,” the official added.
Kumari Selja housing and urban poverty alleviation minister feels that the boom in the real estate is targeting only the upwardly section of society.
“The objective of the interest subsidy scheme is to ensure the economically weaker section gets the opportunity to own houses,” the official added.
During the 11th Plan period shortage of dwelling units was anticipated at 45 million.
Out of which the weaker section needs more than 31 million. In the next five years the government is planning to address at least 50% of the requirement.
The credit-cum-subsidy scheme is expected to fix a loan ceiling of Rs 80,000 for EWS and Rs 1.50 lakh for the low income group (LIG). EWS comprises up to Rs 3,300 per month of those earning and LIG Rs 3,301-7,300 per month.
During this fiscal period the credit flow from banks and specialized housing finance companies (HFCs) for promotion of rural housing has not been encouraging. In 2007-08 banks and HFCs are expected to offer loans for 3.5 lakh dwelling units.
According to industry watchers the withdrawal of 0.5% concession on interest rate on refinance from the National Housing Bank (NHB) is the reason for low credit flow.
“We have requested the NHB to reintroduce the concession so that HFCs get some kind of incentive to offer more housing loans to the weaker sections,” DHFL Vysya Housing Finance managing director R Nambirajan told ET.
“The discount offered by banks and financiers would be met through interest subsidies provided by the government,” a housing ministry official said.
In November with RBI the National Housing & Habitat Policy announced schemes; the ministry is working on the protocols of the schemes.
“The Budget may define the salary brackets eligible for the interest subsidy,” the official added.
Kumari Selja housing and urban poverty alleviation minister feels that the boom in the real estate is targeting only the upwardly section of society.
“The objective of the interest subsidy scheme is to ensure the economically weaker section gets the opportunity to own houses,” the official added.
During the 11th Plan period shortage of dwelling units was anticipated at 45 million.
Out of which the weaker section needs more than 31 million. In the next five years the government is planning to address at least 50% of the requirement.
The credit-cum-subsidy scheme is expected to fix a loan ceiling of Rs 80,000 for EWS and Rs 1.50 lakh for the low income group (LIG). EWS comprises up to Rs 3,300 per month of those earning and LIG Rs 3,301-7,300 per month.
During this fiscal period the credit flow from banks and specialized housing finance companies (HFCs) for promotion of rural housing has not been encouraging. In 2007-08 banks and HFCs are expected to offer loans for 3.5 lakh dwelling units.
According to industry watchers the withdrawal of 0.5% concession on interest rate on refinance from the National Housing Bank (NHB) is the reason for low credit flow.
“We have requested the NHB to reintroduce the concession so that HFCs get some kind of incentive to offer more housing loans to the weaker sections,” DHFL Vysya Housing Finance managing director R Nambirajan told ET.
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