IBA seeks RBI clarification on reverse mortgage

The reverse mortgage loan, a product especially for senior citizens may become cheaper if the Reserve Bank of India (RBI) lowers the risk weightage on such loans. According to media reports, the Indian Banks' Association has approached RBI for clarification on whether the product is to be treated as a personal loan or a retail loan.

According to the current guidelines, banks assign a risk weightage of 125 per cent point on the personal loan against 75 per cent on retail loans. As reverse mortgages loans are availed by individuals and the amount is in the range of Rs 1 lakh to Rs 50 lakh, it could be treated as a personal loan for all practical purposes.

Bankers say that the reverse mortgage loan should be considered as a 'retail loan' since it has a social angle to it. The loan does not generate any income for the bank for 15 years. Even if it has to sell the property on the death of the borrower, the proceeds in excess of the loan amount are transferred to the nominee.

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