Sucheta Dalal :With new entrants the reverse mortgage arena will become more competitive
Sucheta Dalal

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With new entrants, the reverse mortgage arena will become more competitive   

April 16, 2010

 Banks like Punjab National Bank, Corporation Bank, Union Bank and Bank of India and insurance companies like the Life Insurance Corporation of India (LIC) and Reliance Life Insurance—among other companies—are showing interest in the reverse mortgage segment. This in turn would prove to be a boon for senior citizens.


Recently, the National Housing Bank (NHB) had announced a revised reverse mortgage scheme based on a bank-insurance company tie-up model. This new revised scheme would be beneficial both for senior citizens and the bank.


According to well-placed sources, most public sector banks have shown interest in this new model. However, not much has been heard from private sector banks on this segment.


“Banks are looking at tie-ups with Star Union Dai-ichi and also at other options of tie-ups with other insurance companies,” said a source, on the basis of anonymity. It is also likely that these banks may come up with different variants of the product based on the ‘bank-insurance’ company concept.


The first reverse mortgage product was introduced in May 2007, followed by a new scheme from NHB in 2009. The first product on the basis of the new revised model is being offered by Central Bank of India along with Star Union Dai-ichi.


The new model, (see:, not only offers better returns compared to the first version introduced in 2007, it also makes the product viable for banks. Earlier, banks had to bear 100% of the risks involved in the product. But with the new product, the risks are divided between the insurance company and the bank. Typically, the bank bears an ‘over-valued property’ risk, while the insurance company would bear the longevity risk (if the senior citizen lives exceptionally longer). This could be one of the main reasons for the growing interest from banks in the revised model.


Given the fact that the revised model offers lifetime annuity payments, growing competition in this segment will help senior citizens enjoy the best value for their homes.— Amritha Pillay

-- Sucheta Dalal