Final Research Project Niki

To study Reverse Mortgage in SBI Bank
Dissertation Submitted to the

BESs Institute of Management Studies and Research
(Approved by AICTE & Affiliated to University of Mumbai)
In partial fulfillment of the requirements for the award of the Degree of
MASTERS IN MANAGEMENT STUDIES
Submitted by: Nikita Hemant Jadhav (Roll No.13)
Research Guide: Prof. Mustafa Sapatwala
May 2011
Nikita Jadhav (Finance)
DECLARATION
I hereby declare that the dissertation titled To study Reverse Mortgage in SBI Bank submitted for the MMS Degree of University of Mumbai at BESs Institute of Management Studies and Research, is my original work and the dissertation has not been plagiarized or formed the basis for the award of any other diploma or degree, associate ship, fellowship or any other similar titles.
Place: Mumbai Date: 25/04/2011
Signature of the Student (Miss. Nikita Hemant Jadhav)
CERTIFICATE
This is to certify that the dissertation titled To study Reverse Mortgage in SBI Bank is the bona fide research work carried out by Nikita Hemant Jadhav student of MMS, at BESs Institute of Management Studies and Research (Affiliated to University of Mumbai) during the year 2009 -2011, in partial fulfillment of the requirements for the award of the Degree of Master of Management Studies of University of Mumbai and that the dissertation has not formed the basis for the award previously of any degree, diploma, associate ship, fellowship or any other similar title.
Place: Mumbai Date: 25/04/2011
Signature of the Director
Signature of the Guide
ACKNOWLEDGEMENTS
I am grateful to BESs Institute of Management Studies and Research (Approved by AICTE & Affiliated to University of Mumbai) for giving me an opportunity to pursue MMS. I wish to thank Professor Vikram D. Shikhare, Director, BESs Institute of Management Studies and Research, who has been a perpetual source of inspiration and offered valuable suggestions to improve my Research work.
I am thankful to my Research Guide Prof. Mustafa Sapatwala, BESs Institute of Management Studies and Research, for abundant guidance, support, and encouragement throughout my study.
I wish to express my gratitude to various people from the banking sector for providing me valuable information.
I would like to express my thanks to my family, friends and colleagues for their unfailing support.
Place: Mumbai Date: 25/04/ 2011
Signature of the student (Miss. Nikita Hemant Jadhav)
TABLE OF CONTENTS
CHAPTER NO A B C 1
TITLE LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS EXECUTIVE SUMMARY OBJECTIVE OF THE STUDY
PAGE NO. 6 7 8 9 11 12 13 22 60 70 94 106 108 117 125 127 131 138
2 2.1 2.2 3 4 5 6 6.1 6.2 7 8 9 10
INTRODUCTION BANKING INDUSTRY OVERVIEW INTRODUCTION STATE BANK OF INDIA REVERSE MORTGAGE IN SBI RESEARCH METHODOLOGY LITERATURE REVIEW DATA ANALYSIS AND INTERPRETATION GRAPHICAL INTERPRETATION CROSS TABULATION USING SPSS CONCLUSION FINDINGS AND SUGGESTION BIBLIOGRAPHY APPENDIX
LIST OF TABLES
TABLE NO
TITLE
PAGE NO
2.1
DIFFERENCE BETWEEN TRADITIONAL MORTGAGE AND REVERSE MORTGAGE SOURCES OF INCOME SUPPORT FOR THE ELDERLY IN INDIA INSTALLMENTS ON MONTHLY, QUARTERLY BASIS
34
2.2 5.1
45 62
6.1 TO GRAPHICAL REPRESENTATION TABLE 6.11 6.12 TO CROSS TABULATION USING SPSS 6.13
108
117
LIST OF FIGURES
FIG NO.
TITLE
PAGE NO
2.1
BANKING STRUCTURE IN INDIA: 18 ORGANIZATION STRUCTURE OF THE SBI
2.2
29
3.3
MARKET SIZE AND POTENTIAL 47
6.1 TO GRAPHICAL REPRESENTATION 6.11 6.12 TO CROSS TABULATION USING SPSS 6.13
108
117
LIST OF ABBREVIATIONS
HFC RM
HOUSING FINANCE COMPANY REVERSE MORTGAGE
NHB NATIONAL HOUSING BANK DFHL DEWAN HOUSING FINANCE LIMITED SIPP SURVEY OF INCOME AND PROGRAM PARTICIPATION
HECM HOME EQUITY CONVERSION MORTGAGE SCB SCHEDULED COMMERCIAL BANKS
ATM AUTOMATED TELLER MACHINES HUD HOUSING AND URBAN DEVELOPMENT
CHAPTER 1 EXECUTIVE SUMMARY
To study Reverse Mortgage in SBI Bank EXECUTIVE SUMMARY
Old age comes with its own share of problems. As a person grows older, and his regular source of income dries up, his dependency on others can increase significantly. With health care expenses on the rise and little social security, living the golden years respectfully can be quite a challenge for senior citizens. In such a scenario, a regular income stream that can help them meet their financial needs and maintain their current living standards becomes important. One typical feature with most senior citizens is that their residential property accounts for a significant portion of their total asset pie. And, given its illiquid nature, property fails to aid senior citizens on the liquidity front. In the Union Budget 2007-08, a proposal to introduce 'Reverse Mortgages' was put forth. To understand the concept of reverse mortgage, first let us understand what a regular mortgage is. In a regular mortgage, a borrower mortgages his new/existing house with the lender in return for the loan amount (which in turn he uses to finance the property); the same is charged at a particular interest rate and runs over a predetermined tenure. The borrower then has to repay the loan amount in the form of EMIs (equated monthly installments), which comprise of both principal and interest amounts. The property is utilized as a security to cover the risk of default on the borrower's part. In the reverse mortgage, senior citizens (borrowers), who own a house property, but do not have regular income, can mortgage the same with the lender (a scheduled bank or a housing finance company-HFC). In return, the lender makes periodic payment to the borrowers during their lifetime. In spite of mortgaging the house property, the borrower can continue to stay in it during his entire life span and continue to receive regular flows of income from the lender as well. Also,
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To study Reverse Mortgage in SBI Bank since the borrower doesn't have to service the loan, he need not bother about repaying the 'borrowed amount' to the lender. The concept of Reverse Mortgage (RM) is gaining momentum in Indian with Finance Minister P. Chidambaram giving his nod in the Union Budget for 2007-08. Subsequently, the National Housing Bank (NHB), a subsidiary of the Reserve Bank of India (RBI), released the guidelines. This had led several banks to announce their intentions to launch the scheme. Taking the lead, Dewan Housing Finance Limited (DFHL), followed by Punjab National Bank (PNB) and Bank of Baroda (BOB), State Bank of India (SBI), etc. announced the scheme aimed at senior citizens
[1]
Objectives of the research study
I. II. III. IV. V.
To bring out the concept of Reverse Mortgage. To perform SWOT Analysis of Reverse Mortgage. To study basic features and process of SBI-Reverse Mortgage. To recommend best strategies for making Reverse Mortgage more acceptable in India. To describe the degree to which reverse mortgages met consumer needs and the degree to which Consumers are satisfied with their loans
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CHAPTER 2 INTRODUCTION

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2.1 Banking industry overview

History: Banking in India has its origin as carry as the Vedic period. It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to the interest. During the mogal period, the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of East India Company, it was to turn of the agency houses top carry on the banking business. The general bank of India was the first joint stock bank to be established in the year 1786.The others which followed were the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906, while the other two failed in the meantime. In the first half of the 19th Century the East India Company established three banks; The Bank of Bengal in 1809, The Bank of Bombay in 1840 and The Bank of Madras in 1843.These three banks also known as presidency banks and were independent units and functioned well. These three banks were amalgamated in 1920 and The Imperial Bank of India was established on the 27th Jan 1921, with the passing of the SBI Act in 1955, the undertaking of The Imperial Bank of India was taken over by the newly constituted SBI. The Reserve Bank which is the Central Bank was created in 1935 by passing of RBI Act 1934, in the wake of swadeshi movement, a number of banks with Indian Management were established in the country namely Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, The Bank of Baroda Ltd, The Central Bank of India Ltd .On July 19th 1969, 14 Major Banks of the country were nationalized and in 15th April 1980 six more commercial private sector banks were also taken over by the government. The Indian Banking industry, which is governed by the Banking Regulation Act of India 1949, can be
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To study Reverse Mortgage in SBI Bank broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled Banks comprise commercial banks and the co-operative banks. The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from class banking to mass banking. This in turn resulted in the significant growth in the geographical coverage of banks. Every bank had to earmark a min percentage of their loan portfolio to sectors identified as priority sectors the manufacturing sector also grew during the 1970s in protected environments and the banking sector was a critical source. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980 since then the number of scheduled commercial banks increased four- fold and the number of bank branches increased to eight fold. After the second phase of financial sector reforms and liberalization of the sector in the early nineties. The PSBs found it extremely difficult to complete with the new private sector banks and the foreign banks. The new private sector first made their appearance after the guidelines permitting them were issued in January 1993. [28]
The Indian Banking System: Banking in our country is already witnessing the sea changes as the banking sector seeks new technology and its applications. The best port is that the benefits are beginning to reach the masses. Earlier this domain was the preserve of very few organizations. Foreign banks with heavy investments in technology started giving some Out of the world customer services. But, such services were available only to selected few- the very large account holders. Then came the liberalization and with it a multitude of private banks, a large segment of the urban population now requires minimal time and space for its banking needs. Automated teller machines or popularly known as ATM are the three alphabets that have changed the concept of banking like
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To study Reverse Mortgage in SBI Bank nothing before. Instead of tellers handling your own cash, today there are efficient machines that dont talk but just dispense cash. Under the Reserve Bank of India Act 1934, banks are classified as scheduled banks and nonscheduled banks. The scheduled banks are those, which are entered in the Second Schedule of RBI Act, 1934. Such banks are those, which have paid- up capital and reserves of an aggregate value of not less than Rs.5 lacs and which satisfy RBI that their affairs are carried out in the interest of their depositors. All commercial banks Indian and Foreign, regional rural banks and state co-operative banks are Scheduled banks. Non Scheduled banks are those, which have not been included in the Second Schedule of the RBI Act, 1934. The organized banking system in India can be broadly classified into three categories: (i) Commercial Banks (ii) Regional Rural Banks and (iii) Co-operative banks. The Reserve Bank of India is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all commercial banks and hence is known as the Reserve Bank. Current scenario: The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favorably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. Indias Nikita Jadhav (Finance)
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To study Reverse Mortgage in SBI Bank banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success. The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. A weak banking structure has been unable to fuel continued growth, which has harmed the long-term health of their economies. In this white paper, we emphasize the need to act both decisively and quickly to build an enabling, rather than a limiting, banking sector in India. Indian banks have compared favorably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. These changes include strengthening prudential norms, enhancing the payments system and integrating regulations between commercial and co-operative banks. However, the cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. While bank lending has been a significant driver of GDP growth and employment, periodic instances of the failure of some weak banks have often threatened the stability of the system. Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless addressed, could seriously weaken the health of the sector. Further, the inability of bank managements (with some notable exceptions)
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To study Reverse Mortgage in SBI Bank to improve capital allocation, increase the productivity of their service platforms and improve the performance ethic in their organizations could seriously affect future performance. Bank is a financial institution that borrows money from the public and lends money to the public for productive purposes. The Indian Banking Regulation Act of 1949 defines the term Banking Company as "Any company which transacts banking business in India" and the term banking as "Accepting for the purpose of lending all investment of deposits, of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft or otherwise".
Banks play important role in economic development of a country, like: y Banks mobilize the small savings of the people and make them available for productive purposes. y Promotes the habit of savings among the people thereby offering attractive rates of interests on their deposits. y Provides safety and security to the surplus money of the depositors and as well provides a convenient and economical method of payment. y y Banks provide convenient means of transfer of fund from one place to another. Helps the movement of capital from regions where it is not very useful to regions where it can be more useful y Banks advances exposure in trade and commerce, industry and agriculture by knowing their financial requirements and prospects. y Bank acts as an intermediary between the depositors and the investors. Bank also acts as mediator between exporter and importer who does foreign trades.
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To study Reverse Mortgage in SBI Bank Thus Indian banking has come from a long way from being a sleepy business institution to a highly pro-active and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances.
Fig 2.1: Banking structure in India:
RESERVE BANK OF INDIA SCHEDULED BANKS COMMERCIAL BANKS PRIVATE BANKS (31) OLD BANKS (23) CO-OPERATIVE BANKS URBAN COOPERATIVE (52) STATE CO-OPERATIVE (16)
NEW BANKS (8) PUBLIC SECTOR BANKS (27) SBI AND ASSOCIATES (8) NATIONALIZED BANKS (19)
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To study Reverse Mortgage in SBI Bank The banking institutions in the organized sector, commercial banks are the oldest institutions, some them having their genesis in the nineteenth century. Initially they were set up in large numbers, mostly as corporate bodies with shareholding with private individuals. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking. Commercial Banks operating in India fall under different sub categories on the basis of their ownership and control over management; Public Sector Banks Public Sector Banks emerged in India in three stages. First the conversion of the then existing Imperial Bank of India into State Bank of India in 1955, followed by the taking over of the seven associated banks as its subsidiary. Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Sector Banks. New Private Sector Banks After the nationalization of the major banks in the private sector in 1969 and 1980, no new bank could be setup in India for about two decades, though there was no legal bar to that effect. The Narasimham Committee on financial sector reforms recommended the establishment of new banks of India. RBI thereafter issued guidelines for setting up of new private sector banks in India in January 1993. These guidelines aim at ensuring that new banks are financially viable and technologically up to date from the start. They have to work in a professional manner, so as to improve the image of commercial banking system and to win the confidence of the public. Eight private sector banks have been established including banks sector by financially institutions like IDBI, ICICI, and UTI etc.
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To study Reverse Mortgage in SBI Bank Local Area Banks Such Banks can be established as public limited companies in the private sector and can be promoted by individuals, companies, trusts and societies. The minimum paid up capital of such banks would be 5 crores with promoters contribution at least Rs. 2 crores. They are to be set up in district towns and the area of their operations would be limited to a maximum of 3 districts. At present, four local area banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh. Foreign Banks Foreign commercial banks are the branches in India of the joint stock banks incorporated abroad. There number was 38 as on 31.03.2009. Scheduled Commercial Banks in India The commercial banking structure in India consists of:
Scheduled Commercial Banks in India Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section42 (6) a) of the Act. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under
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To study Reverse Mortgage in SBI Bank section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank". "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank". Cooperative Banks Besides the commercial banks, there exists in India another set of banking institutions called cooperative credit institutions. These have been made in existence in India since long. They undertake the business of banking both in urban and rural areas on the principle of cooperation. They have served a useful role in spreading the banking habit throughout the country. Yet, there financial position is not sound and a majority of cooperative banks has yet to achieve financial viability on a sustainable basis. The cooperative banks have been set up under various Cooperative Societies Acts enacted by State Governments. Hence the State Governments regulate these banks. In 1966, need was felt to regulate their activities to ensure their soundness and to protect the interests of depositors According to the RBI in March 2009, number of all Scheduled Commercial Banks (SCBs) was 171 of which, 86 were Regional Rural Banks and the number of Non-Scheduled Commercial Banks including Local Area Banks stood at 5. Taking into account all banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all automated teller machines (ATMs).
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2.2 INTRODUCTION STATE BANK OF INDIA

y Evolution of SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and were not imposed from outside in an arbitrary manner to modernize India's economy. Their evolution was, however, shaped by ideas culled from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the global economic framework.
Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock banking in India. So was the associated innovation in banking, viz. the decision to allow the Bank of Bengal to issue notes, which would be accepted for payment of public revenues within a restricted geographical area. This right of note issue was very valuable not only for the Bank of Nikita Jadhav (Finance)
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To study Reverse Mortgage in SBI Bank Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the capital of the banks, a capital on which the proprietors did not have to pay any interest. The concept of deposit banking was also an innovation because the practice of accepting money for safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous bankers had not spread as a general habit in most parts of India. But, for a long time, and especially up to the time that the three presidency banks had a right of note issue, bank notes and government balances made up the bulk of the investible resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each charter provided for a share capital, four-fifth of which were privately subscribed and the rest owned by the provincial government. The members of the board of directors, which managed the affairs of each bank, were mostly proprietary directors representing the large European managing agency houses in India. The rest were government nominees, invariably civil servants, one of whom was elected as the president of the board.
Business
The business of the banks was initially confined to discounting of bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation confined to three months only. The business of the banks was initially confined to discounting of bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation confined to three months only. The security for such loans was public securities, commonly called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a
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To study Reverse Mortgage in SBI Bank perishable nature' and no interest could be charged beyond a rate of twelve per cent. Loans against goods like opium, indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also granted but such finance by way of cash credits gained momentum only from the third decade of the nineteenth century. All commodities, including tea, sugar and jute, which began to be financed later, were either pledged or hypothecated to the bank.
Demand promissory notes were signed by the borrower in favor of the guarantor, which was in turn endorsed to the bank. Lending against shares of the banks or on the mortgage of houses, land or other real property was, however, forbidden Indians were the principal borrowers against deposit of Company's paper, while the business of discounts on private as well as salary bills was almost the exclusive monopoly of individuals Europeans and their partnership firms. But the main function of the three banks, as far as the government was concerned, was to help the latter raise loans from time to time and also provide a degree of stability to the prices of government securities.
Major change in the conditions
A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue of the presidency banks was abolished and the Government of India assumed from 1 March 1862 the sole power of issuing paper currency within British India. The task of management and circulation of the new currency notes was conferred on the presidency banks and the Government undertook to transfer the Treasury balances to the banks at places where the banks would open branches. None of the three banks had till then any branches (except the sole attempt and that too a short-lived one by the Bank of Bengal at Mirzapore in 1839) although the charters
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To study Reverse Mortgage in SBI Bank had given them such authority. But as soon as the three presidency bands were assured of the free use of government Treasury balances at places where they would open branches, they embarked on branch expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three presidency banks covered most of the major parts and many of the inland trade centers in India. While the Bank of Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the Banks of Bombay and Madras had fifteen each.
Presidency Banks Act
The presidency Banks Act, which came into operation on 1 May 1876, brought the three presidency banks under a common statute with similar restrictions on business. The proprietary connection of the Government was, however, terminated, though the banks continued to hold charge of the public debt offices in the three presidency towns, and the custody of a part of the government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta, Bombay and Madras into which sums above the specified minimum balances promised to the presidency banks at only their head offices were to be lodged. The Government could lend to the presidency banks from such Reserve Treasuries but the latter could look upon them more as a favour than as a right. The decision of the Government to keep the surplus balances in Reserve Treasuries outside the normal control of the presidency banks and the connected decision not to guarantee minimum government balances at new places where branches were to be opened effectively checked the growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits of that bank were mainly derived from trade dispersed among a number of port towns and inland centers of the presidency. India witnessed rapid commercialization in the last quarter of the Nikita Jadhav (Finance)
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To study Reverse Mortgage in SBI Bank nineteenth century as its railway network expanded to cover all the major regions of the country. New irrigation networks in Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash crops, a portion of which found its way into the foreign markets. Tea and coffee plantations transformed large areas of the eastern Terais, the hills of Assam and the Nilgiris into regions of estate agriculture par excellence. All these resulted in the expansion of India's international trade more than six-fold. The three presidency banks were both beneficiaries and promoters of this commercialization process as they became involved in the financing of practically every trading, manufacturing and mining activity in the sub-continent. While the Banks of Bengal and Bombay were engaged in the financing of large modern manufacturing industries, the Bank of Madras went into the financing of large modern manufacturing industries, the Bank of Madras went into the financing of small-scale industries in a way which had no parallel elsewhere. But the three banks were rigorously excluded from any business involving foreign exchange. Not only was such business considered risky for these banks, which held government deposits, it was also feared that these banks enjoying government patronage would offer unfair competition to the exchange banks which had by then arrived in India. This exclusion continued till the creation of the Reserve Bank of India in 1935. Presidency Banks of Bengal
The presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in 1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a giant among Indian commercial banks had emerged. The new bank took on the triple role of a commercial bank, a banker's bank and a banker to the government, But this creation was preceded by years of deliberations on the need for a 'State Bank of India'. What eventually emerged was a 'half-way house' combining the functions of a commercial bank and a quasi-
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To study Reverse Mortgage in SBI Bank central bank. The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the Government of India and instead became agent of the Reserve Bank for the transaction of government business at centers at which the central bank was not established. But it continued to maintain currency chests and small coin depots and operate the remittance facilities scheme for other banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers' bank by holding their surplus cash and granting them advances against authorized securities. The management of the bank clearing houses also continued with it at many places where the Reserve Bank did not have offices. The bank was also the biggest tendered at the Treasury bill auctions conducted by the Reserve Bank on behalf of the Government. The establishment of the Reserve Bank simultaneously saw important amendments being made to the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier restrictions on its business were removed and the bank was permitted to undertake foreign exchange business and executor and trustee business for the first time.
Imperial Bank
The Imperial Bank during the three and a half decades of its existence recorded an impressive growth in terms of offices, reserves, deposits, investments and advances, the increases in some cases amounting to more than six-fold. The financial status and security inherited from its forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking which the Imperial Bank consistently maintained and the high standard of integrity it observed in its operations inspired confidence in its depositors that no other bank in India could perhaps then equal. All these enabled the Imperial Bank to acquire a pre-eminent position in the Indian
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To study Reverse Mortgage in SBI Bank banking industry and also secure a vital place in the country's economic life. When India attained freedom, the Imperial Bank had a capital base (including reserves) of Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a network of 172 branches and more than 200 sub offices extending all over the country. First Five Year Plan
In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority. The commercial banks of the country including the Imperial Bank of India had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries (later named Associates).The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The concept of banking as mere repositories of the community's savings and lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub serving the growing and diversified financial needs of planned economic development. The State Bank of India was
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To study Reverse Mortgage in SBI Bank destined to act as the pacesetter in this respect and lead the Indian banking system into the exciting field of national development. [54] Fig 4.2 Organization structure of the SBI [55]
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Source- [55]
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2.3 Introduction to Reverse Mortgage

Old age comes with its own share of problems. As a person grows older, and his regular source of income dries up, his dependency on others can increase significantly. With health care expenses on the rise and little social security, living the golden years respectfully can be quite a challenge for senior citizens. In such a scenario, a regular income stream that can help them meet their financial needs and maintain their current living standards becomes important. One typical feature with most senior citizens is that their residential property accounts for a significant portion of their total asset pie. And, given its illiquid nature, property fails to aid senior citizens on the liquidity front. In the Union Budget 2007-08, a proposal to introduce 'Reverse Mortgages' was put forth. To understand the concept of reverse mortgage, first let us understand what a regular mortgage is. In a regular mortgage, a borrower mortgages his new/existing house with the lender in return for the loan amount (which in turn he uses to finance the property); the same is charged at a particular interest rate and runs over a predetermined tenure. The borrower then has to repay the loan amount in the form of EMIs (equated monthly installments), which comprise of both principal and interest amounts. The property is utilized as a security to cover the risk of default on the borrower's part. In the reverse mortgage, senior citizens (borrowers), who own a house property, but do not have regular income, can mortgage the same with the lender (a scheduled bank or a housing finance company-HFC). In return, the lender makes periodic payment to the borrowers during their lifetime. In spite of mortgaging the house property, the borrower can continue to stay in it during his entire life span and continue to receive regular flows of income from the lender as well. Also,
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To study Reverse Mortgage in SBI Bank since the borrower doesn't have to service the loan, he need not bother about repaying the 'borrowed amount' to the lender. The concept of Reverse Mortgage (RM) is gaining momentum in Indian with Finance Minister P. Chidambaram giving his nod in the Union Budget for 2007-08. Subsequently, the National Housing Bank (NHB), a subsidiary of the Reserve Bank of India (RBI), released the guidelines. This had led several banks to announce their intentions to launch the scheme. Taking the lead, Dewan Housing Finance Limited (DFHL), followed by Punjab National Bank (PNB) and Bank of Baroda (BOB), State Bank of India (SBI), etc. announced the scheme aimed at senior citizens. Senior homeowners of all income levels have taken out reverse mortgages for many different reasons. For some, reverse mortgages provide the extra money that let them stay securely in their homes throughout retirement. For others, reverse mortgages provide a means to live more comfortably and pursue their dreams. Its a special type of mortgage which allows the senior homeowner to access their equity which they have built up in the form of the home and use the money according to their wish, all this while letting owner stay in his home. Its called a reverse mortgage because the flow of payments is reversed from a traditional mortgage. The lender makes payments to the owner, or arranges a line of credit that is available for the owners use. This differs from a traditional mortgage used to purchase or refinance a home in which you must make monthly mortgage payments to the bank. To qualify for most loans, the lender checks the applicants income to see how much he can afford to pay back each month. But with a reverse mortgage, he doesnt have to make monthly repayments. So the owner or the applicant doesnt need a minimum amount of income to qualify for a reverse mortgage. He could have no income, and still be able to get a reverse mortgage.
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To study Reverse Mortgage in SBI Bank With most home loans, if a person fails to make his monthly repayments, he could lose his home. But with a reverse mortgage, he doesnt have any monthly repayments to make. So he cant lose his home by failing to make them. Reverse mortgages typically require no repayment for as long as the owner or co-owner live in the home. So reverse mortgage differ from other home loans in these important ways, the first one is the applicant dont need an income to qualify for a reverse mortgage and the second one is he dont have to make monthly repayments on a reverse mortgage. Reverse mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. But with a reverse mortgage, you are taking the equity out in cash. So with a reverse mortgage your debt increases and your home equity decreases. Its just the opposite, or reverse of traditional mortgage. During a reverse mortgage, the lender sends you cash, and you make no repayments. So the amount you owe (your debt) gets larger as you get more cash and more interest is added to your loan balance. As your debt grows, your equity shrinks, unless your homes value is growing at a high rate. When a reverse mortgage becomes due and payable, you may owe a lot of money and your equity may be very small. If you have the loan for a long time, or if your homes value decreases, there may not be any equity left at the end of the loan. In short, a reverse mortgage is a rising debt, falling equity type of deal. But that is exactly what informed reverse mortgage borrowers want to spend down their home equity while they live in their homes, without having to make monthly loan repayments. [22]
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Table 2.1: mortgage [23]
Difference between traditional mortgage and reverse
Item Purpose of loan Before closing
Mortgage to purchase a home
Reverse Mortgage to generate income
borrower has no equity in borrower has a lot of the home equity in the home
At closing
borrower owes a lot, and has little equity
borrower owes very little, and has lot of equity
During borrower...
the
loan, - makes monthly payments - receives payments from to the lender - loan balance goes down - equity grows the lender - loan balance rises - equity declines - owes substantial amount - has much less, little, or no equity
At end of loan, borrower...
- owes nothing - has substantial equity
Type of Transaction
Falling Debt- Rising Equity
Rising Debt- Falling Equity
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The Benefits of a Reverse Mortgage

y y y y Tax-free funds for as long as you live in your home No loan repayment for as long as you live in your home No income, medical or credit requirements Retain ownership of your home for life this is guaranteed as long as you maintain your home, and pay insurance and real estate taxes y y y

Choose a cash flow plan tailored to your needs No restrictions on how you may use the funds A tax-advantaged way to pass on part of your estate today
The following are the guidelines given by RBI for Reverse Mortgage:-
y y y y
Any house owner over 60 years of age is eligible for a reverse mortgage. The maximum loan is up to 60% of the value of residential property. The maximum period of property mortgage is 15 years with a bank . The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
y y
The revaluation of the property has to be undertaken by the Bank once every 5 years. The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
Reverse mortgage rates can be fixed or floating and hence will vary according to market conditions depending on the interest rate regime chosen by the borrower.
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Costs which are to be incurred while going for Reverse Mortgage
Processing or origination costs: - These are the costs which covers the banks operating expenses for making the loan .This cost can be financed as a part of the total loan.
Mortgage Insurance: - This is the insurance charges of the insurer who guarantees that if the lender that is the banker goes out of business for any reason, the borrower would continue to get his or her payments. The insurer could also guarantee that the borrower will never owe more than the value of his or her home when the loan is finally repaid.
Appraisal fee: - This fee is to be paid to an appraiser who fixes a value on the borrowers home which is to be mortgaged. An appraiser must also make sure there are no major structural defects, such as bad foundation, leaky roof, or termite damage. If the appraiser uncovers property defects, you must hire a contractor to complete the repairs. Once the repairs are completed, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repair may be financed within the loan.
Other fees which include credit report fee for verifying whether any tax liabilities are there, title search fee, document preparation fee for loan documents, mortgage recording fee, survey fee, etc. [24]
Risks to RM Lenders There are some risks faced by a Reverse Mortgage lender. These risks are at the heart of the reluctance of lenders to get into reverse mortgage lending, in the absence of public policy support. The principal and unique problem facing the lender is that of predicting accumulated future loan balances under a reverse mortgage, at the time of origination. The uniqueness is because reverse mortgage is a rising debt instrument. Since reverse mortgage is a non-recourse
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To study Reverse Mortgage in SBI Bank loan, the lender has no access to other properties, if any, of the borrower. Even if the collateral property appreciates in value, it might still be lower than the loan balance at the time of disposal of the property. The following are the basic sources of this risk:1. Mortality Risks:This is the risk that a reverse mortgage borrower lives longer than anticipated. The lender might get hit both ways he has to make annuity payments for a longer period; and the eventual value realised might decline. However, this risk is usually diversifiable, if the reverse mortgage lender has a large pool of such borrowers. Possibility of adverse selection is counterbalanced by the possibility that even borrowers with poor health may be attracted by Reverse Mortgages credit line or lump sum options. However, there is no literature on one possible source of systematic risk. Since reverse mortgage is projected to substantially improve the monthly income and/ or liquid funds of the reverse mortgage borrowers, would it not itself result in a
systematically higher life expectancy amongst them than otherwise, now this is a big question. 2. Interest Rate Risks:Said that the typical reverse mortgage borrower is elderly and is looking for predictable sources of income/ liquidity, reverse mortgage loans promise a fixed monthly payment / lump sum / credit line entitlement. However, for the lender, this is a long-term commitment with significant interest rate risks. While fixing the above, the lender has to account for a risk premium and thus can offer only a conservative deal to the borrower. This interest rate risk is not fully diversifiable within the reverse mortgage portfolio. Most of the reverse mortgage loans accumulate interest on a floating rate basis to minimize interest rate risks to the lender, like in SBI the interest rates are
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To study Reverse Mortgage in SBI Bank revised for every 5 years. However, since there are no actual periodic interest payments from the borrower, these can be realized only at the time of disposal of the house, if at all. 3. Property Market Risk:This risk may be partly diversifiable by geographical diversification of RM loans. However, property values may be a non-stationary time series. In this three risks may be pointed out they are. RM can be considered as a package loan with a crossover put option to the borrower to sell his house at the accumulated value of the reverse mortgage loan at the time of repayment which is uncertain. If this option can be valued, it can be suitably priced and sold in the market. However, unlike in the case of traditional mortgages, markets for resale, securitization and derivatives based on reverse mortgages are non-existent or noncompetitive. Small market size and predominance of government backed reverse mortgage insurance may dissuade potential entrants. This impedes the flow of funds to finance reverse mortgage loans. y For the lender, both the interest and any shared appreciation component added to the loan balance are taxable as current income even though there is no cash inflow. y Reverse mortgage loans found takers amongst lenders only after the availability of default insurance. Even then, in most of the reverse mortgage loans, interest accumulates at a floating rate linked to one-year treasury rates. A fixed interest rate reverse mortgage carries an interest rate risk are higher than a conventional coupon bond or regular mortgage. It could be especially high at origination and continues to be higher throughout. The small initial investment under an reverse mortgage is very deceptive. Reverse mortgage creates very large
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To study Reverse Mortgage in SBI Bank off-balance sheet liabilities, if market rates rise above the rate assumed under reverse mortgage. 4. Moral Hazard Risk:Once an RM loan is taken, the homeowners may have no incentive to maintain the house so as to preserve or enhance market value. This might be especially true when the loan balance is more or less sure to cross the sale value. Since the benefit would accrue mainly to the lenders and the cost borne by the homeowner, it is perhaps not sensible to assume otherwise. They conclude that in a competitive market, the lenders will respond by either reducing the loan amount or by charging a risk premium in interest or both. The more important point is that some time during the tenure of a reverse mortgage, an elderly borrower may simply be physically incapable of maintaining the home as per loan requirements. Though the reverse mortgage loan contract provides for foreclosure under such conditions, this seems to be impractical and sure to result in litigation and bad publicity for the lender.
5. Liquidity Risks:In Reverse mortgage loans where the borrower draws down on his loan through a credit line, there is a risk of sudden withdrawals.
Risk Mitigation
Risk mitigation is the key for the success of any financial product including reverse mortgage. Some of the risk mitigation techniques which the providers that is the banker can apply to reduce the risk on their books are as follow: Proper eligibility criterions
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To study Reverse Mortgage in SBI Bank The first mitigation of risk can be done at the time of providing loans. This can be done through proper verification of the title of the property, age of the borrower; his/her credit analysis etc. This reduces the risk of default by the borrower Variable interest rates loan as compared to fixed interest rate loan To avoid interest rate risk, the lender can go for variable interest rates based on some market benchmark like MIBOR. This will also reduce the risk of Pre-payment as the borrower will not have interest arbitrage on prepayment of the loan. Proper analysis of mortality trends As the product has significant longevity risk, the lender can do a detailed mortality trend analysis on a macro level and also in the market where it is operating. Geographical diversification The lender can look at spreading the business across the country by promoting the product in secondary and tertiary cities also so that the law of large numbers may work properly and if the provider has a bad experience in one market; it can be compensated with good experience in other cities. Develop the product for lower age groups The lender can develop home equity conversion mortgages for all households and not just for elderly. This will significantly reduce loan to value ratio and that will take care of many of the risks inherent in the product. Securitization
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To study Reverse Mortgage in SBI Bank One of the most effective ways of mitigation risk is securitization It involves many other financial players and thus it spreads the risk of default/prepayment to many other participants. Repayment schedule In the Repayment schedule, some default conditions or changes that affect the security of the loan for the lender that can make reverse mortgages payable should also be added, like Declaration of bankruptcy, Donation or abandonment of the house, Condemnation/ Sovereign Takeover of the property by a government agency, adding a new owner to the homes title, taking out new debt against the home etc. Forces affecting Reverse Mortgage Any financial product is affected by some forces. The following are forces that affect this innovative financial product called Reverse Mortgage. 1. Borrowers have to bear very high transaction costs. However, with the latest program we can expect a declining trend in these costs due to growing volumes, increased awareness and learning effects. 2. There is a definite risk of moral hazard in borrowers being responsible for home maintenance and in ultimate home sale. Given the profile of a typical borrower, there are serious questions on both incentives and ability. It is impractical to enforce the foreclosure clause. Negative publicity, potential litigation and likely judgments make it so. 3. Home equity is an important component of precautionary savings. If a homeowner has drawn down on his equity through a reverse mortgage, his ability to meet unforeseen health care costs or move into alternative housing may be more limited. Those who become seriously ill but would like to continue to stay at home may face a severe problem. If they have to be
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To study Reverse Mortgage in SBI Bank away from home for long for convalescence, they may fail to maintain the home and pay property taxes. Then, as per the conditions of the reverse mortgage, the lender can foreclose the loan. 4. Many elderly households may be simply reluctant to take on debt, having spent so much of their lifetime saving for their own house. 5. Real estate laws are state specific whereas regulations governing reverse mortgage loans are national in character. If there is a conflict, state laws will prevail unless pre-empted by federal law. 6. Laws in some states are not clear on the lien priority to be granted to reverse mortgage over other secured creditors, in spite of specific provisions in a reverse mortgage contract. 7. What happens if a household declares bankruptcy, having borrowed through a Reverse mortgage is a big question. 8. Uncertainty exists on taxation of the borrower. If reverse mortgage annuities were considered taxable as income of the borrower, would accrued interest on the loan be a tax-deductible expense is an issue. 9. The tax authorities may if classify an reverse mortgage as a sale of home rather than a loan, given the high probability that the entire value may ultimately accrue to the lender. If so, the borrower may suddenly find that he has lost out on one-time exemptions on capital gains. 10. The lender has to account for accrued interest as income, without any corresponding cash flow. [25]
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Indian Market Potential India-specific Characteristics of Relevance to RM

y There are no universal old age social security related benefits. Only about 10% of the active working populations are covered by formal schemes. This would substantially enlarge the potential target market for RM. y A much lower proportion of urban households, and by implication, less scope for reverse mortgage. y A much larger proportion of elders co-living with their family members of subsequent generations and hence less scope for reverse mortgage. y y A possibly stronger hand over motive, reducing the scope for reverse mortgage. A possibly higher real rate of appreciation of real estate and housing prices, making reverse mortgage more attractive to the lender. y Widespread under valuation of real estate properties to accommodate transactions involving unaccounted money and evasion of taxes on property and real estate transactions y Complexity, variety and location specific variations in types of home ownerships like Benami holdings that is Irrevocable power of attorney, Leasehold, freehold, Land use conversion regulations, Floor space regulations, rent, tenancy controls, Disposal of ancestral property. y Absence of competitive suppliers for immediate life annuity products. This, in turn, is a consequence of Lack of data on old age mortality rates, Lack of long-term treasury securities for managing interest rate risks of annuity providers.
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To study Reverse Mortgage in SBI Bank y India specific legal and taxation issues like License/ Permission required under insurance/ banking regulation for offering reverse mortgage ,Income tax treatment for reverse mortgage lender and borrower, Capital gains on property, Reporting and provisioning by the lender as per banking/ insurance regulation, Status of RM loan in case of insolvency.
Old Age Population

Though the Indian population is still comparatively young, India is also ageing. According to some demographic survey conducted for India indicated the following outcomes. y The number of elderly (>60 yrs) will increase to 113 million by 2016, 179 million by 2026, and 218 million by 2030. Their share in the total population is projected to be 8.9 % by 2016 and 13.3% by 2026. The dependency ratio is projected to rise from 15% as of now to about 40% in the next four decades
The percentage of >60 in the population of Tamil Nadu and Kerala will reach about 15% by 2020 itself.
Life expectancy at age 60, which is around 17 yrs now, will increase to around 20 by 2020
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To study Reverse Mortgage in SBI Bank Table 2.2: Sources of Income Support for the Elderly in India As of 1994, the estimated percentage among the elderly, dependent on various sources of income was as follows: Source Pensions/Rent Work Transfers Of which, from Children Men 9-10% 65% 30% 22% Women 5% 15% 72% 58% All elderly 7-8% 40% 52% 40%
In addition, as per a survey of the National Sample Survey Organization (NSSO) in 1994, less than 4% of the elderly lived alone. A 1995-96 National Sample Survey of the elderly reported that about 5% of them lived alone, another 10% lived with their spouses only and another 5% lived with relatives/ non-relatives, other than their own children. In other words, co-residence with children and other relatives is predominant. However, the following aspects are worrisome: The extent and adequacy of support, especially for widows Vulnerability of such support to shocks to family income
y y
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To study Reverse Mortgage in SBI Bank y As incomes and life expectancy rose in the now developed countries, simultaneously there was a decline in co-residence rates and intergenerational support. It may happen in India too y Strains due to demographic trends seem inevitable: fewer children must support parents for longer periods of time. In a recent survey covering 30 cities, 70% of the respondents did not expect their children to take care of them after retirement. y Job related migration of youth within the country and emigration.
Potential Market Segments
The senior citizen population in India is growing rapidly due to lower fertility rates, improved healthcare, and better nutrition. The senior population is estimated to become 117 million by 2015, growing from the current population of 87 million. While this segment of the population is increasing, it continues to be largely neglected by policymakers.
The Indian government is now employing innovative strategies towards change. It has begun introducing financial instruments aimed at the senior population. Among several financial products being encouraged is the reverse mortgage loan (RML), which was introduced by the Finance Minister in his annual budget for 2007-08.
In a new report, Reverse Mortgage Market: Early Days for India, Celent examines the opportunity and challenges associated with this market opportunity from the lenders perspective. The RML product class is expected to have a directly addressable market
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To study Reverse Mortgage in SBI Bank opportunity of around 6 million households with a total of US$113 billion home equity by 2015 across both urban and rural India.
Fig 3.3: Market size and potential
Now let us see specification of the potential target segment for Reverse Mortgage. Age Group
Above 58 years, assuming 58 is the typical retirement age. Older the individual, more attractive will be reverse mortgage. Additional considerations will include the minimum age specified for preferential treatment as senior citizens in matters such as income tax or the recently introduced Varishta Bima Yojana. y High House Equity
The current monthly annuity payout by LIC under its immediate annuity product Jeevan Akshay is 844 Rs for a single premium payment of Rs 1 lakh, for a person aged 65. The annuity will be
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To study Reverse Mortgage in SBI Bank lower in case of joint life or annuity certain options. If we were to use a minimum of Rs 5000 as the monthly annuity that makes reverse mortgage a worthwhile activity, we need an RM loan of around Rs 6 lakhs. Assuming a loan to home value ratio of 60%, this implies a current market value of Rs. 10 lakhs. Low Current Incomes Relative to Desired Standard of Living
Amongst such households, we are looking for those whose current levels of income are insufficient to afford their desired standard of living. The salary replacement rates suggested in the literature, for maintaining the same standard of living after retirement as before, is around 60%. This implies a pre-retirement take home salary or income (after-tax) of around Rs 900010000 a month. A potential reverse mortgage borrower would be one who had such a preretirement income but no substantial pension benefits. Therefore, he would be employed in the private sector or self-employed. Long Tenure at Current Home
Reverse Mortgage is attractive to a borrower especially when he values continued stay in his current residence and plans to do so for a long term into the future. This is likely when he has already stayed in his current home for a relatively longer period- say a minimum of 10 years. Additional indicators for such a desire could be a person currently resident in ones home town/ state. Lack of Other Supports
If such an individual is living alone, as in the case of a widower or widow, reverse mortgage can make a substantial contribution to his/ her standard of living. Alternatively, the next generation may be living far away, either in India or abroad.
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To study Reverse Mortgage in SBI Bank y No Significant Bequeath Motive
It can be said that there is a basic conflict between taking an reverse mortgage loan and a desire to bequeath property to ones heirs. If an elderly homeowner has no children, this question may not arise. Otherwise, we need to look for attributes indicating a weak bequeath motive. For example, in the Indian context, it could mean no sons. Or it could be that the entire next generation of the family has migrated to another metro or abroad with no intention of coming back. They may be much better off than the older generation and may not value bequests, if any. y Independence and Quality of Life
A potential reverse mortgage borrower must be an elderly person who values his financial independence. He must be interested in maintaining his desired quality of life rather than curtailing consumption for lack of current cash income. This implies he must be mentally prepared to consider borrowing in old age, let alone through innovative financial products like reverse mortgage. This implies certain minimum education and exposure to financial savings/ assets/ markets. [26]
Considerations in Product Design Now lets see what are the aspects which need to be focused for a product design likely to be attractive from the perspective of a potential reverse mortgage customer and a lender. Customer Perspective:y Empathetic counseling from professionally competent and independent counselorsNGOs like Help Age, Dignity Foundation, Indian Association of Retired Persons (IARP) etc., may be interested in providing such services
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To study Reverse Mortgage in SBI Bank y Ratio of reverse mortgage Loan limit to current market value of property: This will be a function of borrowers age, projected long term interest rates and property appreciation rates. y Flexibility in drawdown: The line of credit with interest credit for unutilized portion is the most popular choice in the U.S context. The same might be true in India too. Cash may be withdrawn as and when needed, especially large amounts to meet medical and other emergencies, in contrast to a regular monthly amount. However this is vulnerable to myopic withdrawals or under pressure from relatives. y y Minimum possible reverse mortgage closure costs. Clarity in borrowers responsibility for property maintenance and paying property taxes, insurance etc. Strong legal protection against foreclosure and/ or forcible eviction based on fine print may be desirable. Alternatively, the reverse mortgage lender should be willing to take over such a responsibility against deduction from reverse mortgage loan limit/ annuity. y y y Clarity in tax treatment of reverse mortgage receipts, accrued interest, capital gains etc. Option to refinance in case interest rates decline substantially Protection against lender defaults- though not very critical.
Lender Perspective:The major concern is with respect to the risks of longevity, interest rates and property appreciation rates. There is no simple way to explore these except through financial modeling. Some alternatives for limiting risks in the learning phase can be suggested as below.
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To study Reverse Mortgage in SBI Bank y Purchasing a life annuity through an insurance tie-up so that a part of the mortality risk is transferred to the insurer with the necessary core competence. Their expertise may also be used to decide on the lump sum reverse mortgage loan. y Based on the U.S experience so far, it seems better for the lender to assume responsibility for property maintenance/ taxes against deduction from reverse mortgage loan limits/ annuity payments. y Though insurance against default risk is unlikely in India, an reverse mortgage lender has to charge an equivalent additional interest spread of 2-2.5%, if not more, as a default risk premium y It seems worthwhile to explore and lobby for concessional refinance for reverse mortgage loans from agencies like the National Housing Bank and for lower reverse mortgage related transaction taxes. y Given the requirement of property market related expertise at the micro-level, it might be worthwhile to focus on only one or two cities in the initial phase. y There might be a need for tie-ups with agencies for various services- property valuation, title search, property maintenance and so on. [29]
Myths about Reverse Mortgages The following are some of the myths about reverse mortgage in the minds of the people which need to be clearly addressed in order to make this product more attractive and popular. 1. The lender will own the home
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To study Reverse Mortgage in SBI Bank The applicant and his family will continue to retain ownership of the home. The Lender does not take control of the title. The lender's interest is limited to the outstanding loan balance. 2. Reverse Mortgage lenders just want to sell your house The lenders are in the business of helping to keep owners home and meet whatever financial needs he may have in order to help him to maintain financial independence. Reverse Mortgage borrowers may remain in the home for as long as they wish. However, should they decide to sell the home for any reason, the loan would then become due and payable. 3. Owners heirs will be saddled with the loan The Reverse Mortgage is a non-recourse loan. This means that the lender can only derive repayment of the loan from the proceeds of the sale of the property. 4. Owner need a certain level of income, good credit, or good health to qualify A Reverse Mortgage has no income, credit, or health requirements. 5. Owner has to make monthly payments on his Reverse Mortgage There are never any monthly payments. Payment of taxes, insurance and general upkeep of the home are the only responsibilities of the homeowner. 6. Home must be debt free to qualify for a Reverse Mortgage Owner may have a mortgage or other debt on his home. The mortgage or debt however, must be paid off first with the proceeds of the reverse mortgage. 7. Only the "cash poor" or desperate senior citizens can benefit from the Reverse Mortgage
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To study Reverse Mortgage in SBI Bank Even though some seniors may have a greater need than others for the cash or monthly income, the Reverse Mortgage can also be an excellent financial or estate planning tool.
SWOT analysis on reverse mortgage loans Under this scheme, any senior citizen owning unencumbered residential property in India can mortgage such property for a loan, to tide over expenses in their twilight years. Here's a SWOT analysis of the same.
Strengths y The senior citizens are entitled to regular cash flows at their choice - monthly, quarterly, half yearly and annually. y The loan is given without any income criteria at an age where normal loans are not available. y y No loan servicing or repayment required during the lifetime of borrower and spouse. If the borrower dies during the period, the spouse will continue to get the loan amount for 15 years. y Tax treatment of a RML will be as loan, not income, so no tax will be payable on the regular cash flows y y y The borrower and their spouse can continue to stay in the house till both die. Heirs of the borrower will be entitled to get the surplus of sale value of the property. Borrower/heir can get mortgage released by paying loan with interest without having to sell property at any time.
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To study Reverse Mortgage in SBI Bank y Reassessment of property value will be done periodically say once every 5 years.
Weaknesses This loan product has a maximum tenure of only 15 years. If the borrower outlives this period, the regular cash flows will stop. y y y Basis of property valuation is not clear. Requirement of clear title to property in the name of the borrower to get the loan. Various fees to be added to borrowers liability, which can be quite substantial.
Opportunities y y y Partial substitute for a social security scheme for senior citizens. Increasing number of nuclear families. Medical expenses and cost of living going up, increasing the need for additional income in old age. y Most Indians have strong preference for own home. Therefore many eligible citizens may opt for the scheme.
Threats Property valuations are ambiguous. There is a non-recourse guarantee, which means that loan plus interest should never exceed realizable value of property. In case of fall in property value or loan with interest
y y
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To study Reverse Mortgage in SBI Bank exceeding assessed property value, banks may resort to strong-arm tactics to force the borrowers to move out, if they live too long after the loan period is over. y Rate of interest is at the discretion of lender. Any increase in the rate, if floating, will increase the burden of the borrower. y Lender has discretion to raise loan amount on revaluation. However, if it does not do so, borrower doesn't get loan according to proper value of property.
y
Lender has right to foreclose loan by forcing sale of property if borrower doesn't pay for insurance, property taxes or maintain and repair house. [1]
The following factors are considered while determining the amount of loan. y y y y y y Age of the borrower and any co-applicant. The current value of the property and expected property appreciation rate. The current interest rate and interest rate volatility (interest rate risk). Closure and servicing costs. Specific features chosen like fixed or floating interest. Whether the payment is taken as lump sum, or monthly payments or quarterly payment. Lump sum provides the cash immediately, but the interest fees are the highest. y The location of the property and whether the maximum loan amount is subject to the maximum loan limits.
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Steps to followed for getting a Reverse mortgage

The following are the important steps which are to be followed by every person who is going for reverse mortgage. EDUCATION The applicant must first educate himself about the reverse mortgage by visiting this website; this will the beginning of reverse home mortgage learning process. Many banks nowadays send their representatives to the home of the applicants to explain the benefits of a reverse home mortgage to the homeowner and family or friends. Any doubts regarding reverse mortgage may be cleared at that time. If the homeowner has already had HUD counseling OR is ready to proceed with the process, an application is to be completed. Government has developed some websites like HUD or AARP which can be visited for details of reverse mortgage. HUD COUNSELING Counseling by a HUD approved counselor is required. This can be taken as a first step or after the application has been completed. HUD counseling can be done via the telephone or at a fixed location. The HUD counselor will sign and date a HUD Counseling Certificate at the conclusion of the meeting. The borrower(s) then sign and date the HUD counseling certificate and give it to their Loan Officer to start the loan process. APPLICATION The loan officer takes the application before or after HUD counseling. The loan officer carefully explains the Reverse home mortgage program features and benefits. Some of the forms are Good Faith Estimate, Tax & Insurance Disclosure, Loan application,
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To study Reverse Mortgage in SBI Bank Privacy Policy Disclosure. The loan officer will collect copies of Drivers License or other form of Picture ID, Social Security Card or Medicare Card, Most recent Property tax statement, Homeowners Fire Insurance Policy, Most recent mortgage statement. PROCESSING THE LOAN when both the application and HUD counseling have been completed, you are ready to start processing the loan. The next step is to order a HUD appraisal and a termite inspection. If either report reveals things that require fixing, according to HUD guidelines the borrower can fix these within six months after the close of escrow. If there are repairs required, a separate Repair Set Aside account is created. Fire insurance is required. In some cases the current policy may be less than the lender requires and therefore it is necessary to increase the insurance policy to the current value. CLOSING when the loan documents are ready to be signed, the loan officer will schedule a convenient time to come to the home of the applicant in some case with a notary to go over the documents and sign and date the loan papers. If you choose to have monthly payment, the funds are wired to your account on the first day of every month. If you choose a credit line, the funds are wired within five business days of receiving the request in writing. AFTER CLOSING you must continue to pay property taxes and insurance. You must also maintain your home in good repair. Any repairs that are required must be done within six months of the close date. Proof of required repairs must be sent to the Lender.
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Termination of Reverse Mortgage Contract:The following are the cases where in the reverse mortgage contract may be terminated that is terminating the contract of giving regular payouts to the borrower by the bank before the tenure gets over:-
The borrower has not stayed in the mortgaged property for a continuous period of one year.
The borrower fails to pay property taxes, home insurance or maintain and repair the residential property.
y y
The residential mortgaged property is donated or abandoned by the borrower. The borrower makes changes in the residential property that affect the security of the loan for the lender. For example, renting out a part or the entire house, adding a new owner to the house's title, changing the house's zoning classification, or creating further encumbrance on the property either by way taking out new debt against the residential property or alienating the interest by way of a gift or will.
The government, under legal provisions, seeks to acquire the residential property for public use.
The government condemns the residential property.
Reverse Mortgage Lenders in India The major reverse mortgage lenders in India or the banks and financial institutions providing reverse mortgage in India include:
1. 2.
National Housing Bank (NHB) Dewan Housing Finance Limited (DHFL)

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3. 4. 5.
6.
State Bank of India (SBI) Punjab National Bank (PNB) Indian Bank Central Bank of India
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CHAPTER 3 REVERSE MORTGAGE IN SBI

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Reverse Mortgage in SBI

The State Bank of India (SBI) has started offering reverse mortgage products for senior citizen on October 12, 2007. Joint loans will be given if the spouse is alive and is over 58 years of age. The loan is be offered by all branches of SBI from October 12, 2007. The loan is offered at an interest rate of 10.75% pa and is subject to change at the end of every five years along with revaluation of security. Every five years, bank may even re-adjust the loan installments, if it is needed, depending on market conditions and loan status. In an press report The Chief General Manager for Personal Banking (SBI), Mr. Sangeet Shukla told that there is no upper limit of amount of loan. Also, the maximum period for availing this benefit is 15 years. Under this loan, borrowers can be avail payment against the security of their houses on monthly or quarter installments or either he/she can go for as a lump sum payment at the beginning. During their lifetime, the borrower does not have to pay the loan and will continue to stay in their house. Thereafter, either the legal heirs can repay the loan and redeem the property but if this option is not exercised, bank will sell the property and liquidate the loan. Surplus, if any, will be passed on to the legal heirs. DHFL and Punjab National Bank are the other competitors along with the SBI. Reverse mortgage is very popular product in many countries. The scheme offers old persons with less income to offer their house as mortgage security. The old person will get a loan from the bank and the bank will keep on paying them for a fixed period. After the time of loan is over, the bank may either, acquire the property and give the remainder to the customer heirs or they can pay back and keep the property. The scheme is very good for some people looking for additional money to support their needs at old age.
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To study Reverse Mortgage in SBI Bank The following is the table showing the installments on monthly, quarterly basis for the period of 10 tears and 15 years for a loan amount of Rs 100000 at a interest rate of 10.75%. [41] Table 3.1: Installments on monthly, quarterly basis
Loan Tenor
10 years
15 years
Monthly installments (Rs.)
468
225
Quarterly installments (Rs.)
1,423
687
Lump sum payment (Rs.)
36,022
21,619
In SBI main branch recently one customer showed willingness to take up reverse mortgage. As due to the privacy policy of the bank hence forth the name of the customer will be taken as Mr. A. Mr. A is of 64 ages and owns a house with its title. After the e valuation of the house, the value of the house is estimated to be Rs 10, 00,000. As per the SBI guidelines only the loan is given on 90% of the property value so in this case Mr. A can take a loan of Rs 9,00,000 (that is 90% of 10,00,000). MR .A wants to get the installment on monthly bases for a period of 15 years. So his monthly installment for the period of 15 years for the loan amount is Rs 2,025.
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Guidelines for Reverse Mortgage in SBI 1. Objective of the scheme To provide a source of additional income for senior citizens of India who own self-acquired and self-occupied house property in India. 2. Eligibility No. of borrowers: - Single or jointly with spouse in case of a living spouse. Age of first borrower :- Above 60 years No. of surviving spouses on date of sanction of loan :- Should not be more than one. Borrowers will have to give an undertaking that they will not remarry during the currency of the loan. If the borrowers choose to remarry, the loan will be foreclosed. y y Age of spouse :- Above 58 years Residence :a. Borrower should be staying at self-acquired and self owned house / flat against which loan is being raised, as his permanent primary residence. b. Mobile/Telephone/Credit Card bills/Certificate from the Housing Society where the borrower is staying /Affidavit made before the Executive Magistrate may be accepted as proof of residence. c. Borrowers will be required to inform the Bank when they cease to use this residence as their permanent residence.
y y y
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To study Reverse Mortgage in SBI Bank y Title of the Property :a. Borrowers should have a clear and transferable title in their names b. Title verification and search report for a period of 30 years will be required to be obtained from the Banks empanelled advocate at borrowers cost. y Title of the property and number of borrowers.- In case if the title in single name and loan number of borrowers. Availed jointly with spouse. Title holder should make a Will in favor of the other spouse. The Will should confirm that this is the last Will and that it supersedes all earlier wills, if any. The borrower to undertake that no fresh Will shall be made during the currency of the loan y Encumbrances: - The property should be free from any encumbrances. However in case of property purchased by availing Home Loan from SBI and mortgaged to SBI, it will be considered for RML, subject to closure of the Home Loan account out of the proceeds of RML y Residual Life of property: - Should be at least 20 years in case of single borrower and 25 years in case of spouse being below 60 years of age. Certificate from empanelled engineer/ architect will be required to be obtained for this purpose, in addition to valuation of property. 3. Security The Reverse Mortgage Loan shall be secured by way of equitable mortgage of residential property. 4. Tenor
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To study Reverse Mortgage in SBI Bank y y y Age of the younger of the borrowers between 58 and up to 68 years: 15 years Age of the younger of the borrowers above 68 years: 10 years OR till death of the borrower(s), Whichever is earlier
5. Disbursement By credit to an SB account in the joint names of the borrowers operated by E or S. 6. Periodicity of availing loan Monthly payment. Quarterly payment Lump sum payment
y y y
7. Quantum of loan The loan amount would be 90% of the value of property. Loan amount would include interest till maturity. The maximum loan amount is kept at Rs. 1 Crores and minimum Rs.3 lacs 8. Purpose of Loan Supplementing income, any personal expenses, house repairs, etc. Loan amount should not be used for speculative, trading and business purposes. 9. Repayment/Settlement The loan shall become due and payable only when the last surviving borrower dies or opts to sell the home, or permanently moves out of the home for to an institution or to relatives. Typically, a permanent move may generally mean that neither the borrower nor any other co-borrower has lived in the house continuously for one year or do not
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To study Reverse Mortgage in SBI Bank intend to live continuously. Bank may obtain such documentary evidence as may be deemed appropriate for the purpose. y Settlement of loan along with accumulated interest is to be met by the proceeds received out of sale of residential property or prepayment by borrowers and his next of kin. y The borrower(s) or his/her/their legal heirs/estate shall be provided with the first right to settle the loan along with accumulated interest, without sale of property. y A reasonable amount of time, say up to 6 months, may be provided when RML repayment is triggered, for house to be sold. y The balance surplus (if any), remaining after settlement of the loan with accrued interest and expenses, shall be passed on to the borrower or the estate of the borrower/legal heirs. y Borrowers will be required to submit annual life certificates in the month of November every year. This certificate will also include clauses regarding marital status, and permanent residence of the borrowers, in addition to the balance confirmation as on 31st October of that year. y List of legal heirs will be obtained at the time of sanction of loan. With a view to avoiding disputes at the time of settlement of loan amount by legal heirs, specific instructions about inheritance of the property and payment of balance amount, if any, of the sale proceeds after settling the Banks dues, will be required to be part of the borrowers Will.
10. Foreclosure The loan shall be liable for foreclosure due to occurrence of the following events of default.
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To study Reverse Mortgage in SBI Bank y y If the borrower has/have not stayed in the property for a continuous period of one year If the borrower fail to pay property taxes or maintain and repair the residential property or fail to keep the home insured, the Bank reserves the right to insist on repayment of loan by bringing the residential property to sale and utilizing the sale proceeds to meet the outstanding balance of principal and interest. y y If borrower declares himself/ herself/themselves bankrupt. If the residential property so mortgaged to the Bank is donated or abandoned by the borrower. y If the borrower effect changes in the residential property that affect the security of the loan for the lender. For example: renting out part or all of the house by creating a tenancy right; adding a new owner to the houses title; changing the houses zoning classification; or creating further encumbrance on the property either by way of taking out new debt against the residential property or alienating the interest by way of a gift or will. y y Due to perpetration of fraud or misrepresentation by the borrower. If the Government under statutory provisions, seeks to acquire the residential property for public use. y If the Government condemns the residential property (for example, for health or safety reasons). y Any other event such as re-marriage of the borrower etc. which shall have an adverse impact on the loan settlement prospects. y Borrowers do not accept the revised terms on revaluation of property and interest reset at the end of every 5 years from sanction. y Any violation of the terms and conditions of RML.
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11. Pre-payment of loan The borrower will have option to prepay the loan at any time during the loan tenor. There will be no prepayment penalty.
y y
12. Valuation/Revaluation of property and option for the Bank to adjust payments. After the initial evaluation to determine the loan amount, subsequent revaluations will be done at intervals of 5 years. y The Bank shall have the option to revise the periodic/lump-sum amount every 5 years along with revaluation. In the scenario of fall in property prices, the Bank may decide to revise the amount at any time earlier than 5 years. At every stage of revision, it should be ensured that the Loan to Value ratio does not exceed 90% at maturity. y If the Borrower does not accept the revised terms, no further payments will be effected by the Bank. Interest at the rate agreed before the review will continue to accrue on the outstanding amount of the loan. The accumulated principal and interest shall become due and payable as mentioned in clauses 9 and 10.
13. Interest Rate 10.75% p.a. (Fixed) subject to reset every 5 years. 14. Processing fee 0.50% of the loan amount, minimum Rs. 500 and maximum of Rs. 10,000
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15. Right of Rescission As a customer-friendly gesture and in keeping with international best practices, after the documents have been executed and loan transaction finalized, borrowers will have right of rescission up to seven days to cancel the transaction. If the loan amount has been disbursed, the entire loan amount will need to be repaid by the borrower within this period. However, interest for the period may be waived. Processing fee shall not be refunded in such cases. 16. Insurance and maintenance of house property The house property will be insured by the borrower at his cost against fire, earthquake and other calamities. y y The borrower shall ensure to pay all taxes, charges etc. Bank reserves the right to pay insurance premium, taxes, charges etc. by reducing the loan amount to that extent. y The borrower shall maintain the property in good condition
17. Operational issues Type of facility: - Non-renewable Overdraft without ledger folio charges. No cheque book/debit card will be linked to this account.
y
Availability of product :- All branches [53]
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CHAPTER 4 RESEARCH METHODOLOGY
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RESEARCH METHODOLOGY
Definition of Research When you say that you are undertaking a research study to find answers to a question, you are implying that the process; 1. Is being undertaken within a framework of a set of philosophies (approaches). 2. Uses procedures, methods and techniques that have been tested for their validity and reliability. 3. Is designed to be unbiased and objective.
A philosophy means approaches e.g. qualitative, quantitative and the academic discipline in which you have been trained. Validity means that correct procedures have been applied to find answers to a question. Reliability refers to the quality of a measurement procedure that provides repeatability and accuracy. Unbiased and objective means that you have taken each step in an unbiased manner and drawn each conclusion to the best of your ability and without introducing your own vested interest.
CHARACTERISTICS OF RESEARCH: Research is a process of collecting, analyzing and interpreting information to answer questions. But to qualify as research, the process must have certain characteristics: it must, as far as possible, be controlled, rigorous, systematic, valid and verifiable, empirical and critical.
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To study Reverse Mortgage in SBI Bank Controlled- in real life there are many factors that affect an outcome. The concept of control implies that, in exploring causality in relation to two variables (factors), you set up your study in a way that minimizes the effects of other factors affecting the relationship. This can be achieved to a large extent in the physical sciences (cookery, bakery), as most of the research is done in a laboratory. However, in the social sciences (Hospitality and Tourism) it is extremely difficult as research is carried out on issues related to human beings living in society, where such controls are not possible. Therefore in Hospitality and Tourism, as you cannot control external factors, you attempt to quantify their impact. Rigorous-you must be scrupulous in ensuring that the procedures followed to find answers to questions are relevant, appropriate and justified. Again, the degree of rigor varies markedly between the physical and social sciences and within the social sciences. Systematic-this implies that the procedure adopted to undertake an investigation follow a certain logical sequence. The different steps cannot be taken in a haphazard way. Some procedures must follow others. Valid and verifiable-this concept implies that whatever you conclude on the basis of your findings is correct and can be verified by you and others. Empirical-this means that any conclusion drawn are based upon hard evidence gathered from information collected from real life experiences or observations. Critical-critical scrutiny of the procedures used and the methods employed is crucial to a research enquiry. The process of investigation must be foolproof and free from drawbacks. The process adopted and the procedures used must be able to withstand critical scrutiny. For a process to be called research, it is imperative that it has the above characteristics.
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To study Reverse Mortgage in SBI Bank TYPES OF RESEARCH Research can be classified from three perspectives: 1. Application of research study 2. Objectives in undertaking the research 3. Inquiry mode employed
1. Application: From the point of view of application, there are two broad categories of research: y y Pure research and Applied research.
Pure research involves developing and testing theories and hypotheses that are intellectually challenging to the researcher may or may not have practical application at the present time or in the future. The knowledge produced through pure research is sought in order to add to the existing body of research methods. Applied research is done to solve specific, practical questions; for policy formulation, administration and understanding of a phenomenon. It can be exploratory, but is usually descriptive. It is almost always done on the basis of basic research. Applied research can be carried out by academic or industrial institutions. Often, an academic institution such as a university will have a specific applied research program funded by an industrial partner interested in that program.
2. Objectives: From the viewpoint of objectives, a research can be classified as
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To study Reverse Mortgage in SBI Bank y y y y descriptive correlation explanatory exploratory
Descriptive research attempts to describe systematically a situation, problem, phenomenon, service or programme, or provides information about , say, living condition of a community, or describes attitudes towards an issue. Co relational research attempts to discover or establish the existence of a relationship/ interdependence between two or more aspects of a situation. Explanatory research attempts to clarify why and how there is a relationship between two or more aspects of a situation or phenomenon. Exploratory research is undertaken to explore an area where little is known or to investigate the possibilities of undertaking a particular research study (feasibility study / pilot study). In practice most studies are a combination of the first three categories.
3. Inquiry Mode: From the process adopted to find answer to research questions the two approaches are: Structured approach Unstructured approach
Structured approach: The structured approach to inquiry is usually classified as quantitative research. Here everything that forms the research process- objectives, design, sample, and the questions that you plan to ask of respondents- is predetermined. It is more appropriate to determine the extent of a problem,
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To study Reverse Mortgage in SBI Bank issue or phenomenon by quantifying the variation. e.g. how many people have a particular problem? How many people hold a particular attitude? Unstructured approach: The unstructured approach to inquiry is usually classified as qualitative research. This approach allows flexibility in all aspects of the research process.
Steps in Research Process: 1. Formulating the Research Problem 2. Extensive Literature Review 3. Developing the objectives 4. Preparing the Research Design including Sample Design 5. Collecting the Data 6. Analysis of Data 7. Generalization and Interpretation 8. Preparation of the Report or Presentation of Results-Formal write ups of conclusions reached.
[19]
STEP1. FORMULATING THE RESEARCH PROBLEM: Every research study has two aspects: Study population People: individuals, organizations, groups, communities
Subject area-
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To study Reverse Mortgage in SBI Bank Problems: issues, situations, associations, needs, profiles Program: content, structure, outcomes, attributes, satisfactions, consumers, Service providers, etc. Phenomenon: cause-and-effect relationships, the study of a phenomenon itself As you narrow the research problem, similarly you need to decide very specifically who constitutes your study population, in order to select the appropriate respondents.
STEP 2: REVIEWING THE LITERATURE: Essential preliminary task in order to acquaint yourself with the available body of knowledge in your area of interest. Literature review is integral part of entire research process and makes valuable contribution to every operational step. Reviewing literature can be time-consuming, daunting and frustrating, but is also rewarding. Its functions are: a. Bring clarity and focus to your research problem; b. Improve your methodology; c. Broaden your knowledge; d. Contextualize your findings.
Procedure for reviewing the literature: i) Search for existing literature in your area of study ii) Review the literature selected iii) Develop a theoretical framework iv) Develop a conceptual framework
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Search for existing literature: -To effectively search for literature in your field of enquiry, it is imperative that you have in mind at least some idea of broad subject area and of the problem you wish to investigate, in order to set parameters for your search. Next compile a bibliography for this broad area. Sources are: 1. Books 2. Journals
Step 3 The formulation of objectives: Objectives should be listed under two headings: a) Main objectives (aims); b) Sub-objectives. The main objective is an overall statement of the thrust of your study. It is also a statement of the main associations and relationships that you seek to discover or establish. The sub-objectives are the specific aspects of the topic that you want to investigate within the main framework of your study. They should be numerically listed. Wording should clearly, completely and specifically communicate to your readers your intention. Each objective should contain only one aspect of the Study. Use action oriented words or verbs when writing objectives.
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CHARACTERISTICS OF OBJECTIVES Clear +Complete +Specific + Identify main variables to be correlated + Identify the direction of relationship Identifying Variables: In a research study it is important that the concepts used should be operationalised in measurable terms so that the extent of variations in respondents understanding is reduced if not eliminated. Techniques about how to operationalise concepts, and knowledge about variables, play an important role in reducing this variability. Their knowledge, therefore is important in fine tuning your research problem. The definition of a variable: An image, perception or concept that can be measured hence capable of taking on different values- is called a variable. The difference between a concept and a variable: Concepts are mental images or perceptions and therefore their meaning varies markedly from individual to individual. A concept cannot be measured whereas a variable can be subjected to measurement by crude/refined or subjective/objective units of measurement. It is therefore important for the concept to be converted into variables.
Constructing hypotheses: As a researcher you do not know about a phenomenon, but you do have a hunch to form the basis of certain assumption or guesses. You test these by collecting information that will enable you to conclude if your hunch was right. The verification process can have one of the three outcomes. Your hunch may prove to be:
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To study Reverse Mortgage in SBI Bank 1. Right; 2. Partially right; or 3. Wrong. Without this process of verification, you cannot conclude anything about the validity of your assumption. Hence, a hypotheses is a hunch, assumption, suspicion, assertion or an idea about a phenomenon, relationship or situation, the reality or truth of which you do not know. A researcher calls these assumptions/ hunches hypotheses and they become the basis of an enquiry. In most studies the hypotheses will be based upon your own or someone elses observation. Hypotheses bring clarity, specificity and focus to a research problem, but are not essential for a study. You can conduct a valid investigation without constructing formal hypotheses. The functions of hypotheses: y The formulation of hypothesis provides a study with focus. It tells you what specific aspects of a research problem to investigate. y A hypothesis tells you what data to collect and what not to collect, thereby providing focus to the study. y y As it provides a focus, the construction of a hypothesis enhances objectivity in a study. A hypothesis may enable you to add to the formulation of a theory. It enables you to specifically conclude what is true or what is false.
STEP 4. PREPARING THE RESEARCH DESIGN Research design is the conceptual structure within which research would be conducted. The function of research design is to provide for the collection of relevant information with minimal
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To study Reverse Mortgage in SBI Bank expenditure of effort, time and money. The preparation of research design, appropriate for a particular research problem, involves the consideration of the following: 1. Objectives of the research study. 2. Method of Data Collection to be adopted 3. Source of informationSample Design 4. Tool for Data collection 5. Data Analysis-- qualitative and quantitative 1. Objectives of the Research Study: Objectives identified to answer the research questions have to be listed making sure that they are: a) Numbered, and b) Statement begins with an action verb. 2. Methods of Data Collection: There are two types of data Primary Data: collected for the first time Secondary Data: those which have already been collected and analysed by someone else. Methods of Primary Data Collection 1) OBSERVATION METHOD: Commonly used in behavioral sciences It is the gathering of primary data by investigators own direct observation of relevant people, actions and situations without asking from the respondent. y A hotel chain sends observers posing as guests into its coffee shop to check on cleanliness and customer service. y A food service operator sends researchers into competing restaurants to learn menu items prices, check portion sizes and consistency and observe point-of purchase merchandising.
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To study Reverse Mortgage in SBI Bank y A restaurant evaluates possible new locations by checking out locations of competing restaurants, traffic patterns and neighborhood conditions. Observation can yield information which people are normally unwilling or unable to provide. e.g. Observing numerous plates containing uneaten portions the same menu items indicates that food is not satisfactory. Types of Observation: 1. Structured for descriptive research 2. Unstructuredfor exploratory research 3. Participant Observation 4. Non- participant observation 5. Disguised observation Limitations: - feelings, beliefs and attitudes that motivate buying behavior and infrequent behavior cannot be observed. - Expensive method Because of these limitations, researchers often supplement observation with survey research. 2) SURVEY METHOD Approach most suited for gathering descriptive information. Structured Surveys: use formal lists of questions asked of all respondents in the same way. Unstructured Surveys: let the interviewer probe respondents and guide the interview according to their answers. Survey research may be Direct or Indirect. Direct Approach: The researcher asks direct questions about behaviors and thoughts.
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To study Reverse Mortgage in SBI Bank Indirect Approach: The researcher might ask: What kind of people eat at MacDonalds? From the response, the researcher may be able to discover why the consumer avoids MacDonalds. It may suggest factors of which the consumer is not consciously aware.
3) CONTACT METHODS: Information may be collected by Mail, Telephone, and Personal interview.
Mail Questionnaires: Advantages: y y y y y Can be used to collect large amounts of information at a low cost per respondent. respondents may give more honest answers to personal questions on a mail questionnaire No interviewer is involved to bias the respondents answers. convenient for respondents who can answer when they have time good way to reach people who often travel
Limitations: not flexible take longer to complete than telephone or personal interview response rate is often very low Researcher has no control over who answers.
Telephone Interviewing: Advantages: y quick method
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To study Reverse Mortgage in SBI Bank y y y y more flexible as interviewer can explain questions not understood by the respondent depending on respondents answer they can skip some Qs and probe more on others allows greater sample control response rate tends to be higher than mail
Drawbacks: Cost per respondent higher Some people may not want to discuss personal Qs with interviewer Interviewers manner of speaking may affect the respondents answers Different interviewers may interpret and record response in a variety of ways under time pressure ,data may be entered without actually interviewing
Personal Interviewing: It is very flexible and can be used to collect large amounts of information. Trained interviewers are can hold the respondents attention and are available to clarify difficult questions. They can guide interviews, explore issues, and probe as the situation requires. Personal interview can be used in any type of questionnaire and can be conducted fairly quickly. Interviewers can also show actual products, advertisements, packages and observe and record their reactions and behavior. This takes two formsy y Individual- Intercept interviewing Group - Focus Group Interviewing
4) EXPERIMENTAL METHOD
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To study Reverse Mortgage in SBI Bank Also called Empirical Research or Cause and Effect Method, it is a data-based research, coming up with conclusions which are capable of being verified with observation or experiment. Experimental research is appropriate when proof is sought that certain variables affect other variables in some way. y Tenderizers (independent variable) affect cooking time and texture of meat (dependent variable). y y y The effect of substituting one ingredient in whole or in part for another such as soya Flour to flour for making high protein bread. Develop recipes to use products.
Such research is characterized by the experimenters control over the variables under study and the deliberate manipulation of one of them to study its effects. In such a research, it is necessary to get at facts first hand, at their source, and actively go about doing certain things to stimulate the production of desired information.
5) DETERMINING SAMPLE DESIGN Researchers usually draw conclusions about large groups by taking a sample A Sample is a segment of the population selected to represent the population as a whole. Ideally, the sample should be representative and allow the researcher to make accurate estimates of the thoughts and behavior of the larger population. Designing the sample calls for three decisions: Who will be surveyed? (The Sample) y The researcher must determine what type of information is needed and who is most likely to have it. How many people will be surveyed? (Sample Size)
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To study Reverse Mortgage in SBI Bank y Large samples give more reliable results than small samples. However it is not necessary to sample the entire target population. How should the sample be chosen? (Sampling) y y Sample members may be chosen at random from the entire population (probability sample) The researcher might select people who are easier to obtain information from (non probability sample)
6) TOOL FOR DATA COLLECTION (RESEARCH INSTRUMENTS) The construction of a research instrument or tool for data collection is the most important asp of a research project because anything you say by way of findings or conclusions is based upon the type of information you collect, and the data you collect is entirely dependent upon the questions that you ask of your respondents. The famous saying about computers- garbage in garbage outis also applicable for data collection.
Guidelines to Construct a Research Tool: The underlying principle behind the guidelines suggested below is to ensure the validity of you instrument by making sure that your questions relate to the objectives of your study. Step I: Clearly define and individually list all the specific objectives or research Questions for your study. Step II: For each objective or research questions, list all the associated questions that you want to answer through your study. Step III: Take each research question listed in step II and list the information required to answer it. Step IV: Formulate question(s) to obtain this information.
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The Questionnaire: Structured surveys/ interviews employ the use of a questionnaire. A questionnaire consists of a set of questions presented to a respondent for answers. The respondents read the questions, interpret what is expected and then write down the answers themselves. It is called an Interview Schedule when the researchers asks the questions (and if necessary, explain them) and record the respondents reply on the interview schedule. Because there are many ways to ask questions, the questionnaire is very flexible. Questionnaire should be developed and tested carefully before being used on a large scale. There are three basic types of questionnaire: 1. Closed ended 2. Open-ended 3. Combination of both
1. Closed ended Questionnaire: Closed ended questions include all possible answers/prewritten response categories, and respondents are asked to choose among them. e.g. multiple choice questions, scale questions Type of questions used to generate statistics in quantitative research. As these follow a set format, and most responses can be entered easily into a computer for ease of analysis, greater numbers can be distributed. 2. Open-ended Questionnaire: Open-ended questions allow respondents to answer in their own words.
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To study Reverse Mortgage in SBI Bank Questionnaire does not contain boxes to tick but instead leaves a blank section for the responder to write in an answer. Whereas closed ended questionnaires might be used to find out how many people use serve open-ended questionnaires might be used to find out what people think about a service. As there are no standard answers to these questions, data analysis is more complex. As it is opinions which are sought rather than numbers, fewer questionnaires need to be distributed. 3. Combination of both: This way it is possible to find out how many people use a service and what they think of the service in the same form. Begins with a series of closed ended questions, with boxes to tick or scales to rank, and then finish with a section of open-ended questions or more detailed response.
How to construct questionnaires: y Deciding which questionnaire to use- - closed or open ended, self or interviewer administered y y Wording and structure of questions Length and ordering of the Questions: Keep the questionnaire as short as possible Ask easy Qs. Which respondents will enjoy answering
STEP 5: COLLECTING DATA
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To study Reverse Mortgage in SBI Bank Having formulated the research problem,, developed a study design, constructed a research instrument and selected a sample, you then collect the data from which you will draw inferences and conclusions for your study. Depending upon your plans, you might commence interviews, mail out a questionnaire, conduct experiments and/or make observations. Collecting data through any of the methods may involve some ethical issues in relation to the participants and the researcher: Those from whom information is collected or those who are studied by a researcher become participants of the study. Anyone who collects information for a specific purpose, adhering to the accepted code of conduct, is a researcher.
STEP 6: PROCESSING AND ANALYSING DATA Processing and analysing data involves a number of closely related operations which are performed with the purpose of summarizing the collected data and organizing these in a manner that they answer the research questions (objectives). The Data Processing operations are: 1. Editing- a process of examining the collected raw data to detect errors and omissions and to correct these when possible.
2. Classification- a process of arranging data in groups or classes on the basis of common

characteristics. Depending on the nature of phenomenon involved: a) Classification according to attributes: here data is analysed on the basis of common characteristics which can either be descriptive such as literacy, sex, religion etc. or numerical such as weight, height, income etc.
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To study Reverse Mortgage in SBI Bank b) Classification according to class intervals: is done with data relating to income, age, weight, tariff, production, occupancy etc. 3. Tabulation-Tabulation is the process of summarizing raw data and displaying the same in compact form for further analysis. It is an orderly arrangement of data in columns and rows. Tabulation is essential because: a) It conserves space and reduces explanatory and descriptive statement to a minimum. b) It facilitates the process of comparison. c) It facilitates the summation of items and the detection of errors and omissions. d) It provides the basis for various statistical computations. [21]
STEP 7 DATA ANALYSIS METHODS 1. Qualitative Data Analysis 2. Quantitative Data Analysis
Qualitative Data Analysis: Qualitative data analysis is a very personal process with few rigid rules and procedures. For this purpose, the researcher needs to go through a process called Content Analysis. Content Analysis means analysis of the contents of an interview in order to identify the main themes that emerge from the responses given by the respondents .This process involves a number of steps: 1. Identify the main themes. The researcher needs to carefully go through the descriptive responses given by respondents to each question in order to understand the meaning they communicate. From these responses the researcher develops broad themes that reflect these meanings People use different words and language to express themselves. It is
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To study Reverse Mortgage in SBI Bank important that researcher select wording of the theme in a way that accurately represents the meaning of the responses categorized under a theme. These themes become the basis for analyzing the text of unstructured interviews. 2. Assign codes to the main themes: If the researcher wants to count the number of times a theme has occurred in an interview, he/she needs to select a few responses to an openended question and identify the main themes. He/she continues to identify these themes from the same question till a saturation point is reached. Write these themes and assign a code to each of them, using numbers or keywords. 3. Classify responses under the main themes: Having identified the themes Next step is to go through the transcripts of all the interviews and classify the responses under the different themes. 4. Integrate themes and responses into the text of your report: Having identified responses that fall within different themes, the next step is to integrate into the text of your report. While discussing the main themes that emerged from their study, some researchers use verbatim responses to keep the feel of the response. There are others who count how frequently a theme has occurred, and then provide a sample of the responses. It entirely depends upon the way the researcher wants to communicate the findings to the readers.
Quantitative Data Analysis: This method is most suitable for large well designed and well administered surveys using properly constructed and worded questionnaire. Data can be analysed either manually or with the help of a computer.
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To study Reverse Mortgage in SBI Bank Manual Data Analysis: This can be done if the number of respondents is reasonably small, and there are not many variables to analyse. However, this is useful only for calculating frequencies and for simple cross tabulations. Manual data analysis is extremely time consuming. The easiest way to do this is to code it directly onto large graph paper in columns. Detailed headings can be used or question numbers can be written on each column to code information about the question. To manually analyse data (frequency distribution), count various codes in a column and then decode them. In addition, if you want to carry out statistical tests, they have to be calculated manually. However, the use of statistics depends on your expertise and the desire/need to communicate the findings in a certain way. Data Analysis Using a Computer: If you want to analyse data using computer, you should be familiar with the appropriate program. In this area, knowledge of computer and statistics plays an important role. The most common software is SPSS for windows. However, data input can be long and laborious process, and if data is entered incorrectly, it will influence the final results.
STEP8: REPORTING THE FINDINGS: Writing the report is the last, and for many, the most difficult step of the research process. The report informs the world what you have done, what you have discovered and what conclusions you have drawn from your findings. The report should be written in an academic style. Language should be formal and not journalistic.
[20]
Step 1: Objectives of the research study
VI. VII.
To bring out the concept of Reverse Mortgage. To perform SWOT Analysis of Reverse Mortgage.
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To study Reverse Mortgage in SBI Bank VIII. IX. X. To study basic features and process of SBI-Reverse Mortgage. To recommend best strategies for making Reverse Mortgage more acceptable in India. To describe the degree to which reverse mortgages met consumer needs and the degree to which Consumers are satisfied with their loans
Step 2: Method of Data Collection to be adopted
Primary Data:
The data regarding consumer awareness and interest in reverse mortgages can be taken from Questionnaire method by survey of 250 persons age above 25 years
Secondary data:
The basic features of RM, and its process can be studied based on secondary data collected from NHB.
Data collected through literature survey, journals, Internet search, company records/bulletin, company reports, CD-ROM search etc.
Step 3: Determining sample design
The Sample: Age above 25 years Sample size: 250 persons
Sampling Technique: Probability sampling - Stratified random sample Step 4: Processing and analyzing data
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To study Reverse Mortgage in SBI Bank Processing and analyzing data involves a number of closely related operations which are performed with the purpose of summarizing the collected data and organizing these in a manner that they answer the research questions (objectives). 1. Editing- a process of examining the collected raw data to detect errors and omissions and to correct these when possible. 2. Classification- a process of arranging data in groups or classes on the basis of common characteristics. Depending on the nature of phenomenon involved that is age, gender, etc 3. Tabulation-Tabulation is the process of summarizing raw data and displaying the same in compact form for further analysis. It is an orderly arrangement of data in columns and rows. Tabulation is essential because: a) It conserves space and reduces explanatory and descriptive statement to a minimum. b) It facilitates the process of comparison. c) It facilitates the summation of items and the detection of errors and omissions. d) It provides the basis for various statistical computations.
Step 5: Data analysis methods A. Qualitative Data Analysis: Content Analysis: Content Analysis means analysis of the contents of an interview in order to identify the main themes that emerge from the responses given by the respondents B. Quantitative Data Analysis: This method is most suitable for large well designed and well administered surveys using properly constructed and worded questionnaire. Data can be analyzed with the help of a computer. The most common software is SPSS for windows
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CHAPTER 5 LITERATURE REVIEW

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LITERATURE REVIEW
"Normally, around 50 per cent of a person's lifetime savings are spent in building a house and most old people do not have any retirement plan or social security. If they need money, they need to sell the house. Reverse mortgage is a tool by which senior citizens can liquidate the equity without having to sell it, says P.R. Jaishankar (2010), Assistant General Manager of National Housing Bank, or NHB, a Reserve Bank of India subsidiary.
According to Pritam P. Hans (2010), Reverse mortgage does not keep you away from the benefits of appreciation in the value of your house. The property is revalued regularly (or whenever the bank decides) to reflect the change in its market price. If the value of the property goes up, the bank offers to increase the loan amount. In case of a decline, the bank reduces the loan amount. If the borrower does not agree with the revised terms, further payments are stopped and the interest on the loaned amount keeps accruing. [34] Mayer and Simons (1994) used the 1990 Survey of Income and Program Participation (SIPP) to show that more than six million elderly homeowners have high levels of home equity and could increase their monthly incomes by obtaining reverse mortgages. Although the reverse mortgage payment, as a percentage of monthly income, is small for most households, they showed that it would raise income for almost 1.5 million elderly persons above poverty level. This is due to the fact that most elderly homeowners own their homes free and clear and thus have substantial amounts of untapped home equity. However, since most elderly homeowners have little or no current labor income they cannot qualify for a conventional home equity loan or line of credit.
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To study Reverse Mortgage in SBI Bank Mayer and Simons point out that the majority of HECM borrowers have chosen the line-of-credit option. They attribute this to the fact that many elderly households also have very little liquid wealth. They suggest that the availability of a lump sum payment to protect against various financial shocks that might be related to housing, health care, or automobile care could be very valuable to many elderly homeowners. They use data from the SIPP to illustrate that drawing the full line of credit available in a lump sum could increase liquid wealth by 200 percent or more for many elderly homeowners.
Merrill, Finkel, and Kutty (1994) showed that the potential ratio of annuity payment to income is greatest for households with low incomes. They argued that houses valued below $100,000 would result in annuity payments too small to be worthwhile, while those valued above $200,000 would likely indicate their owners have other assets and would not need to tap into home equity.
Weinrobe (1985) showed that the great majority of homeowners in a Buffalo reverse mortgage program chose a lump-sum payment over an annuity, even though the lump-sum payment had a smaller expected present value.
According to Nirajbhan K Mahajan (2008) with the changing social milieu in India and the collapse of the joint family system, introduction of reverse mortgage products could be a worthwhile experiment. Instead of being dependent on their children for monetary support, this would be a good option for the elderly to continue with a graceful lifestyle. Banks and housing finance companies have already started launching this product and in the near future, they would come out with the reverse mortgage products based on American experience with features like,
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To study Reverse Mortgage in SBI Bank fixed or floating interest, shared appreciation, interest earning credit-line and mortgage insurance. [13]
Though the product was introduced in India in 2006, it is yet to pick up. During the previous two financial years, a total of Rs 1,500 crore was disbursed to nearly 7,500 borrowers. Many private sector banks do not offer reverse mortgage due to the risks involved and taxation issues. "In the United States, reverse mortgage is seen as a social security product. The property price and longevity risks are borne by the government. India is the only country to have a market-oriented reverse mortgage product, says NHB's Jaishankar (2010). In India, cash outflows are for the banks and the inflow is only after the demise of the borrower. [41] Case and Schnare (1994) evaluated HECM borrower characteristics, including the determinants of product choice, using a sample of approximately 2,500 loans. They calculated the probability of a borrower choosing each payment option as a function of age, family composition, property value, property location, and other characteristics. Their findings included the following: 1) younger borrowers were more likely to elect tenure payments; 2) there was not a strong relationship between income and product choice; 3) single men were less likely than women or couples to choose the line-of-credit option; 4) borrowers with higher-valued properties were much less likely to choose the line-of-credit option; and 5) rural borrowers were more likely to choose the line-of-credit option than suburban or urban borrowers. [40]
According to the Pak Banker. Lahore: Apr 19, 2010., RML is aimed at senior citizens when they are in need of funds after their retirement. For people whose biggest financial asset is a home, RML provides an option to avail of periodical payments from a lender against the mortgage of
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To study Reverse Mortgage in SBI Bank his/her house. Such a loan allows the borrower to continue to occupy his house as long as he lives. They might be in receipt of pension but it may not be sufficient to take care of medical or other big ticket expenses like up gradation / renovation of residential property. However, use of RML for speculative, trading and business purposes is not permissible. [39]
Financial institutions, are not pushing reverse mortgage products with great enthusiasm. It is a very difficult product to take to the Indian market. The main worry is the social stigma attached to borrowing, especially for individuals aged over 60 years. Banks are currently targeting only limited segments, including those in the top bracket (individuals or couples having premium property) or those who have not made significant pension investments, says Sachin Khandelwal, Head (Cards Group), ICICI Bank. He thinks that changes in the social fabric will alter the perception towards such products in the near future. [38] Rasmussen, Megbolugbe, and Morgan (1995) analyzed the potential size of the reverse mortgage market. They note that there are two motives for obtaining a reverse mortgage: to draw down wealth as one ages (life-cycle motive) and to diversify illiquid housing wealth (asset management motive). They note that for many households the annuity value may not be large, but the addition to liquid wealth is substantial. [14]
Rasmussen, Megbolugbe, and Morgan (1997) explored the importance of investment motives for obtaining a reverse mortgage and noted how certain expenditures, such as long-term care insurance, mid-career human capital investments, and childrens college costs, may be better financed with a reverse mortgage. The ability of a reverse mortgage to make housing equity
98
To study Reverse Mortgage in SBI Bank more readily accessible allows homeowners more flexibility in financing large expenditures. The availability of a line-of-credit or lump-sum option is necessary for this expanded. [14]
According to the traditional life-cycle model, developed first by Modigliani and Brumberg (1954), Ando and Modigliani (1963), and Friedman (1957), individuals make their saving choices to smooth consumption over their lifetime. Theoretically, households build savings during their working period and divest those savings to meet their consumption needs at older ages. However, empirically, this pattern is not followed. This is specifically true of home equity. On average, seniors citizens tend not to cash in the savings locked in their home equity. Instead, homeownership rates remain stable until later in life. Before the advent of the reverse mortgage, selling and moving out represented the best way to liquidate home equity. [12]
Stucky (2005) estimates the potential market for reverse mortgages at 13 million households. Although 86% of seniors know what a reverse mortgage is, in 2007 only 1 percent of the 30.8 million seniors in the United States closed a reverse mortgage contract. Several economists advocated strong public policy support for reverse mortgages. The relative weakness of the demand for these financial instruments reveals that these federally-insured loans are unable to meet retirees needs and wants. Therefore their focus was on the study of US government failure or, in other words, of the systemic reasons that prevent the HUD (Housing and Urban Development) reverse mortgages from becoming a common tool to finance consumption in retirement. [17]
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To study Reverse Mortgage in SBI Bank Gourinchas and Parker (2002), Cagetti (2003), and French (2005) structurally estimate life-cycle models of consumption, of wealth accu-mulation and of labor supply, retirement, and savings behavior. Hubbard et al. (1994), Palumbo (1999) and Hurd (1989) represent good attempts at modeling consumer behavior after retirement. However, in these papers housing is not taken into account. Given the empirical evidence that for most retirees the house is their major asset, we extend this literature examining the optimal consumption and housing choice for older homeowners. [9]
Cocco (2005) and Yao and Zhang (2005 a,b) by explicitly modeling the housing decision and allowing households to derive utility from both housing and other consumption goods. Meyer and Speare (1985) studies types and determinants of senior mobility. Additionally, we build on the literature of discrete choice models. The framework was introduced by Rust (1987,1988), and extended in Hotz and Miller (1993) and in Aguirragabiria and Mira (2002). However, most of the theoretical papers and the empirical applications focus only on discrete choice. Given that our sample involves both discrete and continuous data, we extend this literature by including continuous choices. [6]
Personal economic issues such as debt, foreclosures, and increase in bankruptcy can be related to unemployment or lack of health care but are often traced back to lack of financial literacy. According to a national survey conducted by the Networks for Financial Institute at Indiana University (2007), approximately two thirds (61%) of adults in the United States understood financial literacy concepts including managing, spending, and saving money wisely. In Indiana, only half of survey respondents felt they understood financial literacy concepts. Additionally, the
100
To study Reverse Mortgage in SBI Bank survey found that the financial areas U.S. adults feel they need the most help in are investing, retirement planning, and taxes (Networks for Financial Institute, 2007, p. 3). [38]
McConaghy (2004) and Cramer (1994) are good examples of recent dissertations that deal with issues related to reverse mortgages. Tate (1987) looked at the impact of reverse mortgages on reducing the poverty of the homeowner. He developed cash flow models to evaluate the benefits from the reverse mortgage with life tenure compared to a reverse mortgage without life tenure. The benefits are modeled as investment returns and the model applied to data from Orlando Standard Metropolitan Statistical Area. Tate found that reverse mortgage with life tenure premium provided a higher return than the one without life tenure. In another pre-6 HECM (Home Equity Conversion Mortgage) dissertation using simulation, Gasper (1984) found reverse mortgages would enable a significant reduction in poverty for the borrowers. [11]
Leviton (1998) used interviews with elderly, low income homeowners to analyze their process of decision making related to housing, financial options, and reverse mortgages. She studied homeowners that were counseled by a Massachusetts non-profit agency and found that a reverse mortgage was seen as a last resort, and most homeowners desired to leave a financial inheritance to their family. Knapp (2001) found family ties and migration patterns in the community affected the demand for HECM. [10]
McConaghy (2004) provides a very good overview of the HECM program since its inception as a pilot program in 1989. He used the HECM data from 1989 to 1999 for a detailed empirical analysis to identify borrower characteristics associated with repayment patterns. McConaghy
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To study Reverse Mortgage in SBI Bank also compared HECM repayment rates with repayment rates among non-HECM elderly borrowers and analyzed whether refinancing with a HECM made sense. While refinancing would have increased borrowing amounts for more than half of the borrowers, it also entailed significant transaction costs and led to loss of equity. McConaghy found that over 60 percent of HECMs were rapid, in less than 10 years, and the repayment for the HECM population was faster than the non-HECM sample studied. [11]
Rasmussen, et. al. (1995) asserted that both borrowers and lenders undertake risk in the process. Reverse mortgages pose three main sources of collateral risk meaning that the loan balance may grow to exceed the value of the collateral for lenders. The three risks are: 1) the borrower may live in the property so long that the continuing payments to the borrower exceed the value of the home; 2) interest rates may raise thereby increasing the interest payments and increasing the debt; 3) the property value may drop such that the value is less than expected when the loan becomes due. Moreover several scholars have noted the risks of the reverse mortgage system. Boehm and Ehrhardt (1992) asserted that the cash flows of a reverse mortgage mirrored the pattern of a life insurance policy in terms of the supporting living costs of the elderly. They (1994) developed a valuation model that quantified the interest rate risk inherent in fixed rate reverse mortgages and showed that the interest rate risk of reverse mortgages was greater than that of either a typical coupon bond or a regular mortgage. Therefore, a reverse mortgage should consider changes in future interest rates. Szymanoski, Jr. (1994) analyzed the risk included in reverse mortgage insurance and demonstrated how borrower longevity, interest rates and property value changed all affected pricing. [16]
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To study Reverse Mortgage in SBI Bank There are several key factors impacting the examination of reverse mortgage use by older people in terms of possible growth factors and the potential implications for their retirement decisions. These include understanding issues pertaining to: Australian retirement and homeownership patterns; retirement income; the types of reverse mortgage products available; and the economic drivers impacting the reverse mortgage market. Further, other researchers have suggested that consumption-based spending on the home may come at the expense of the quality and future of the housing stock, and could put the wellbeing of older homeowners at risk (Smith, Cook and Searle, 2007). [15]
The ageing of the Australian baby boom generation and the consequent concern over adequacy of retirement planning and income has made the issue of home equity release attractive. According to the Reserve Bank Statistical Tables, Australian housing wealth represents approximately 50 percent of the Australian economy overall (Ruthven, 2007). More importantly, the policy spotlight is squarely on equity release options as older Australians are predominantly homeowners, making housing wealth, coupled with lack of adequate superannuation, a potential option for care supplementation and as a means to enable ageing in place. However, the reverse mortgage market in Australia has been slow to develop (Storey, Wilson and Kendig, 1994). This is because products can be costly and older homeowners are still under-informed and conservative in their thinking as it relates to an asset with high personal and inheritance value (Apgar and Di 2005; Rowlingson and McKay 2005). [18]
From Business Line, March 20, 2008 This is with reference to the article 'It is still early days for reverse mortgage in India' (Business Line, March 15), wherein it is reported that as 25 per cent of
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To study Reverse Mortgage in SBI Bank aged population will be living either alone or with their spouses by 2015, reverse mortgage will pick up by then. Notwithstanding the statistical calculations, reverse mortgage may not be popular. This is because every Indian has a sentimental attachment for the property he has inherited or acquired. Even when his/her child(ren) neglect him/her for economic and other reasons, the senior citizen is prepared to reduce his/her needs and bequeath his property to his/her child(ren). So, the scheme, though logical, may not be as popular as expected. [37] From Business Line, March 15, 2008 Mumbai, March 14 - India is getting ready for the reverse mortgage market, but it could be sometime before demand for the product begins to emerge. The senior citizen population in the country is growing and is expected to reach 117 million people in 2015. Improved healthcare and better nutrition means rising average life expectancy. The living arrangement among senior citizens indicates a sizeable market opportunity for RML. Eighty per cent of the senior citizens in the country live with their children, while only around 15 per cent of senior citizens live either alone or just with their spouses. This 15 per cent is expected to grow to 25 per cent by 2015. Legality of ownership A major factor that could constrict the size of the target market is the legality of ownership. The report estimates that only 60 per cent of all households in India have clear ownership. The current market size for RML product is 3 million households and will grow to 6 million by 2015. [36] From BUSINESS LINE, September 23, 2007 Chennai, Sept 22 - The National Housing Bank has written to the Income Tax department, conveying concerns of banks and their customers on a few issues relating to the treatment of loans from reverse mortgage arrangements under the Income Tax laws. Reverse mortgage is a new product that banks are now allowed to offer in which a homeowner borrows against the equity in his home and receives regular monthly
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To study Reverse Mortgage in SBI Bank payments from the lender. Bank customers want to know if these monthly payments are taxable. Technically they should not be, as the payments are in the nature of a loan, but banks want the IT department to explicitly clarify this point. Besides, bankers themselves want clarification on another point. The interest accrued on the monthly payments is booked as income, but banks want to pay tax on it only when the property is monetised and the interest actually earned. [33] G. Ramachandran and Praveen Kumar Grandhi. Businessline. Chennai: Mar 23,
2005.REVERSE mortgage derives its awesome power from its ability to motivate people to build or buy their homes and, thereby, save for their retirement voluntarily. Reverse mortgage serves two significant purposes; it spurs economic activity and provides economic security. From such a perspective, it would be rational to assert that reverse mortgage and India are made for each other. [32]
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CHAPTER 6 DATA ANALYSIS AND INTERPRETATION
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Feasibility study
Feasibility study is the likelihood study. It is the way to determine if a business idea is capable of being achieved. The results which we get out of this study are used to make a decision whether to proceed with the project or no. I took out the feasibility study to see the likelihood of Reverse Mortgage offered by SBI. In order to do the feasibility study of reverse mortgage for SBI main branch I contacted and surveyed 250 respondents. I prepared a questionnaire in which I asked the respondents details about their house, whether they get any pension, whether they are in need of any financial assistance, and their knowledge about reverse mortgage and whether they are willing to go for reverse mortgage or no.
So by this feasibility study we can come to know how many people are need financial assistance, how many people have some knowledge and how many people are willing to go for reverse mortgage. The study can be done using following methods: I. II. Graphical Representation Cross Tabulation using SPSS
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To study Reverse Mortgage in SBI Bank 6.1 Graphical Interpretation
Question 1: The Age group of Respondent (Table 6.1)
25- 55 years 123
Above 55 years 127 250
Age Group
49% 51% 25- 55 years Above 55 years
Fig 6.1 Interpretation: I have divided the total age group in two groups one is the respondent with age between 25 to 55 years and second is the respondent with age above 55 years. From above graph we can say that the total 250 respondents will be divided in two parts and all the answers are interpreted from the angle of their age group. Here, 51% means 127 respondent from age group above 55 years and 49% i.e. 123 respondents are from age group of 25 to 55 years.
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To study Reverse Mortgage in SBI Bank Question 2: Do you own a house with its clear title? (Table6.2)
Yes 153 250 No 97
Do you own a house with its clear title?

Yes No
39% 61%
Fig 6.2 Interpretation: One of the most important criteria for obtaining for Reverse Mortgage is you should own a house with its clear title. From above graph we can say that 61% (153 respondents) of the total respondents own a house whereas 39% (97 respondents) does not.
Question 2A: If yes, what is the market value of the house? (Table 6.3) If yes, What is the market value of the house? Below 5 lacs
8
5 lacs 10 lacs 10 lacs to 20 lacs

19 153 43
More than 20 lacs

83
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If yes, What is the market value of the house?

5% 13% Below 5 lacs 54% 28% 5 lacs 10 lacs 10 lacs to 20 lacs More than 20 lacs
Fig 6.3 Interpretation: In the sample size of 250 people 153 people own a house, out of that 153 people 8 people had house whose market value was below 500000 Rs., 19 people had house whose market value was between Rs 500000 to Rs 100000, 43 people had house whose market value was between Rs 1000000 to Rs 200000 and 43 people had house whose market value was above Rs 2000000. Question 2B: Is the house used for residence? (Table6.4)
Yes 149 153 No 4
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Is the house used for residence?

3%
Yes No 97%
Fig 6.4 Interpretation: From 153 people who own the house maximum that is 97% people use that house for residence and 3% people are not using the house for residence.
Question 3: Are you a Retired person? (Table 6.5)

Yes 124 250 No 126
Are you a Retired person?
50%
50% Yes No
Fig 6.5
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Interpretation: From above graph we can say that 124 people are retired person who are eligible for obtaining reverse mortgage and 126 people are not retired. Question 3A: Do you get any pension? (Table 6.6)
Yes 49 126 No 75
Do you get any pension?

40% 60% YES NO
Fig 6.6 Interpretation: From above graph we can say that from 126 retired people only 40% i.e. 49 people get pension and 75 people does not get any pension after retirement.
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To study Reverse Mortgage in SBI Bank Question 4: Do you need any financial assistance after retirement? (Table 6.7)
Yes 237 250 No 13
Do you need any financial assistance after retirement?

5%
Yes No 95%
Fig 6.7 Interpretation: Financial assistance refers to whether the respondent is in need of money for his daily needs after retirement. Here out of 250 respondents 95% of the people needed financial assistance for their expenses and remaining 5% people did not need any kind of financial assistance for their daily expenses. Question 5: Are you concerned about your ability to handle a large unexpected expense such as a health emergency after retirement? (Table 6.8)
Yes 231 250 No 19
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Are you concerned about your ability to handle a large unexpected expense such as a health emergency after retirement?
8% Yes 92% No
Fig 6.8 Interpretation: Here 92% respondent were concerned about their ability to handle a large unexpected expense such as a health emergency after retirement and rest 8% did not worried about unexpected expenses after retirement. Question 6: Do you know about Reverse Mortgage? (Table 6.9)
Yes 52 250 No 198
Do you know about Reverse Mortgage

21% Yes 79% No
Fig 6.9
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To study Reverse Mortgage in SBI Bank Interpretation: Here knowledge about Reverse Mortgage refers to how many people are aware about the concept of Reverse Mortgage. So according to my survey of 250 respondents only 21% that is 52 respondents had a basic idea about Reverse Mortgage and the remaining 79% that is 198 people did not had any kind of knowledge about reverse Mortgage. So by this we can say that many people dont have a basic idea about Reverse Mortgage and the bank need to focus on spreading the concept of reverse mortgage. Question 6A: If no, do you need details about Reverse mortgage? (Table 6.10)
Yes 183 250 No 67
If no, do you need details about Reverse mortgage?

27% Yes 73% No
Fig 6.10 Interpretation: Only 27% respondents from 250 people are willing to know about reverse mortgage rest 73% are not interested to even know the concept of RM.
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To study Reverse Mortgage in SBI Bank Question 7: Are you willing to go for reverse mortgage? (Table 6.11)
Yes 37 250 No 213
Are you willing to go for reverse mortgage?

15% Yes 85% No
Fig 6.11
Interpretation: As before we saw that only 21% of the respondents had some basic knowledge about reverse mortgage and after providing the knowledge about reverse mortgage only 15% that is 37 respondents were willing to go for reverse mortgage. From the above chart we can say that maximum people feel it is not worthwhile to go for reverse mortgage.
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6.2 Cross Tabulation using SPSS

Using cross tabulation we will see the relationship between two questions. Cross tabulation was done using software called SPSS. 1. Relationship between Age group and knowledge about Reverse mortgage Result from SPSS:
Case Processing Summary (Table 6.12)
Cases
Valid
Missing
Total
Percent
Percent
Percent
25_55_years : Yes
31
12.4%
219
87.6%
250
100.0%
25_55_years : No
92
36.8%
158
63.2%
250
100.0%
Above_55_years : Yes
21
8.4%
229
91.6%
250
100.0%
Above_55_years: No
106
42.4%
144
57.6%
250
100.0%
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Age group 25 to 55 years who are having knowledge about Reverse mortgage
Count
Yes6
Total
@25_55_years
31
31
Total
31
31
Age group 25 to 55 years who are not having knowledge about Reverse mortgage
Count
No6
Total
@25_55_years
92
92
Total
92
92
118
Age group above 55 years who are having knowledge about Reverse mortgage
Count
Yes6
Total
Above_55_years_
21
21
Total
21
21
Age group above 55 years who are not having knowledge about Reverse mortgage
Count
No6
Total
Above_55_years_
106
106
Total
106
106
119
Age Group
Knowledge about R.M. Yes No 92 106
Total
22-55 55 & above Total
31 21
123 127 250
Knowledge about R.M.

22-55 55 & above
106
21 31 Yes Knowledge about R.M. No
92
Fig 6.12
Interpretation: From above graph I can say that there are total 123 people from age group 25 to 55 years and 127 people from above 55 years age group. From 25 to 55 age group, 31 people had knowledge about reverse mortgage and 21 people from age group of 55 years and above had knowledge about reverse mortgage Nikita Jadhav (Finance)
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To study Reverse Mortgage in SBI Bank 2. Relationship between people those who need any financial assistance after retirement and people those want to go for reverse mortgage.
Result from SPSS:
(Table 6.13)
Case Processing Summary
Cases
Valid
Missing
Total
Percent
Percent
Percent
Yes4 * Yes8
35
14.0%
215
86.0%
250
100.0%
Yes4 * No8
202
80.8%
48
19.2%
250
100.0%
No4 * Yes8
.8%
248
99.2%
250
100.0%
No4 * No8
11
4.4%
239
95.6%
250
100.0%
People who need financial assistance after retirement and want to go for reverse mortgage
Count
Yes8
Total
Yes4
35
35
Total
35
35
121

People who need financial assistance after retirement and do not want to go for reverse mortgage
Count
No8
Total
Yes4
202
202
Total
202
202
People who do not need financial assistance after retirement and want to go for reverse mortgage
Count
Yes8
Total
No4
Total
122

People who do not need financial assistance after retirement and do not want to go for reverse mortgage
Count
No8
Total
No4
11
11
Total
11
11
Need financial assistance after retirement
Going for R.M.
Total
yes yes no Total 35 2
No 202 11 237 13 250
123
People who need financial assistance after retirement and want to go for reverse mortgage
yes (retirement assistance) no (retirement assistance)
11
202 2 35 yes Going for R.M. No
Fig 6.13
Interpretation: From above graph I can say that 237 people need financial assistance after retirement but only 35 people willing to go for reverse mortgage. 13 people do not need any financial assistance after retirement.
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CHAPTER 7 CONCLUSION
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To study Reverse Mortgage in SBI Bank Conclusion:1. The senior citizens will definitely find Reverse mortgage a solution for their financial needs after retirement and help them in regaining their feeling of independence. With the changing social milieu in India and the collapse of the joint family system, introduction of reverse mortgage products could be a worthwhile experiment. Instead of being dependent on their children for monetary support, this would be a good option for the elderly to continue with a graceful lifestyle. For the purpose of feasibility study I conducted a survey of 250 respondents. After conducting the survey of 250 peoples, only 21% of the total population had some basic knowledge about reverse mortgage which includes 25% with age group of 25 to 55 years and 16% with age group above 55 years. Using cross tabulation I can conclude that 95% of the respondents needed some kind of financial assistance after their retirement but only 15% people were willing to go for reverse mortgage. People are not willing to go for reverse mortgage the reasons may be that the house is only important assets, the elder people would like to transfer their house to their legal heirs. As we can see in India joint families are more the elder people dont like to sell their house they would like to live in the same house and would like to transfer the house to their legal heirs. So it can be concluded that concept of Reverse mortgage still in infancy stage in India. If designed properly and offered by an empathetic lender, RM might turn out to be the vanguard product to build up brand equity for the lender in this niche segment. Demographic projections indicate that this segment is the fastest growing segment all over the world.
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CHAPTER 8 FINDINGS AND SUGGESTIONS
127
FINDINGS AND SUGGESTIONS

Findings: An attractive option to the elderly to finance their consumption needs on their own. The loan is given without any income, medical or credit requirements criteria. Encourage more people in the working population to increase the proportion of their savings invested in housing. Reverse mortgage lender in the Indian market must proceed with caution. The actual size of the reverse mortgage markets is nowhere near its estimated potential. Out of 250 respondents only 52 people had some basic knowledge about Reverse Mortgage. Only 37 people were willing to go for Reverse Mortgage out of 250 respondents.
Suggestions: Educate people about reverse mortgage: - As by the survey I have found out that only 21% of the respondents have some basic idea about reverse mortgage, so by this it can be said that people are not educated about reverse mortgage. So I would suggest the bank to educate the people about reverse mortgage through advertisements, conducting workshops and lectures on reverse mortgage etc. Take responsibility for the expenses incurred by the borrower on property valuation etc: As it is necessary that the person going for reverse mortgage should make valuation of his property first, these valuation expenses are incurred by the applicant himself. During
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To study Reverse Mortgage in SBI Bank my survey some respondents said that, as they are aged it is very difficult for them arrange money for property valuation and for this reason they think going for reverse mortgage is not attractive. So I would suggest bank to take responsibility of the expenses incurred by the borrower on property by including it in the total value so that many people go for it. Proper eligibility criterions: - In some cases there is a risk of default by the borrower; this risk can be avoided at the time of providing loans. So in order to avoid the risk I would suggest the bank to do proper verification of the title of the property, age of the borrower; his/her credit analysis etc. This reduces the risk of default by the borrower Geographical diversification.:- The bank can look at spreading the business across the country by promoting the product in secondary and tertiary cities also so that the law of large numbers may work properly and if the bank has a bad experience in one market; it can be compensated with good experience in other cities Aggressive marketing measures have to be taken up to bring conceptual awareness. There should be complete transparency and clear cut regulatory norms for benefit of borrower. Tax authority must issue guidelines regarding tax treatment. Potential clients should be counseled about the advantages of product through bank councilors, senior citizen associations or forums.
Following steps may be taken to make the facility of reverse mortgage workable: 1. End use of loan should be monitored. An explicit clause preventing use of loan to support wards personal requirements or businesses to be introduced.
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To study Reverse Mortgage in SBI Bank 2. Interest paid on reverse mortgage should be explicitly allowed under income from house property to give tax advantage to the borrower. 3. Insurance of credit default such as in the US should be made mandatory. A small part of the loan amount may be parked in unit linked insurance schemes so that the premium paid will keep appreciating and at the same time in the eventuality of death, the sum assured will likely make any good deficit. 4. Instead of merely capping loan amount as a percentage of value, total outstanding including interest should be capped if the borrowers survive the term of loan. The borrower must undertake to pay the difference from his other sources. 5. A pool account may be operated by NHB or any agency promoted for this purpose which will meet short recoveries either due to outstanding overtaking the value of property or, due to value of property falling. Counseling to be mandatory could be free as in the US and should be done by advisors carrying NHB certificates.
130
CHAPTER 9 BIBLIOGRAPHY
131
Bibliography
I. Research Journal
1. A study on Reverse Mortgage of SBI by N. Sravanthi, Indian Journal of Finance, August 2010, pg no. 20-23 2. Reverse Mortgage Choices: A Theoretical and Empirical Analysis of the Borrowing Decisions of Elderly Homeowners by Michael C. Fratantoni, Journal of Housing Research Volume 10, Issue 2, pg no.189 3. Ando, A., and F. Modigliani (1963): .The .Life-Cycle. Hypothesis of Saving: Aggregate Im-plications and Tests, American Economic Review, 53, 55.84. 4. Boehm, Thomas P., Michael C. Ehrhardt., 1994. Reverse Mortgages and Interest Rate Risk, Journal of the American Real Estate and Urban Economics Association 22(2), 387-408. 5. Catherine Bridge, Mark Mathews, Peter Phibbs and Toni Adams (2009), Reverse mortgages and older people: growth factors and implications for retirement decisions, Australian Housing and Urban Research Institute 6. Cocco, J. F., F. Gomes, and P. Maenhout (2005): "Consumption and Portfolio Choice over the Life Cycle," Journal of Financial Studies, 18(2), 491-533. 7. Gasper, Juli-Ann. 1984. Asset Depletion and Cash Flow Increase Effects of Reverse Mortgage Use by Elderly Households. Ph.D. Dissertation, the University Of Nebraska Lincoln. 8. Gourinchas, P. O. and J. A. Parker (2002): "Consumption over the Life Cycle,"
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To study Reverse Mortgage in SBI Bank Econometrica, 70(1), 47-89. 9. Hurd, M. (1989): "Mortality Risk and Bequests," Econometrica, 57, 779-813. 10. Leviton, Roberta. 1999. Elderly Decision-Making about Reverse Mortgages Ph.D. Dissertation, Brandeis University, the Florence Heller Graduate School for Advanced Studies in Social Welfare. 11. McConaghy, Richard W., 2004. Mortality, Move-out and Refinancing as Factors in HECM Reverse Mortgage Payoffs. Ph.D. Dissertation, University Of Massachusetts Boston. 12. Modigliani, F., and R. Brumberg (1954): .Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data,. in Post-Keynesian Economics, ed. by K. K. Kurihara, pp.388.436. Rutgers University Press, New Brunswick. 13. Nirajbhan K Mahajan, 2008 Reverse MortgageIn Housing Finance, Pg. 28 14. Rasmussen, David W., Isaac F. Megbolugbe and Barbara A. Morgan., 1995. Using the 1990 Public Use Microdata Sample to Estimate Potential Demand for Reverse Mortgage Products, Journal of Housing Research 6(1), 1-23 15. Smith, S. J., Cook, N., & Searle, B. A. (2007). From canny consumer to care-full citizen: towards a nation of home stewardship? (Report No. 35). York: An ESRC/AHRC Cultures of Consumption Programme Working Paper 16. Szymanoski, Jr., Edward J., 1994. Risk and the Home Equity Conversion Mortgage, Journal of the American Real Estate and Urban Economics Association 22(2), 347-366. 17. Valentina michelangeli(2008): Does it pay to get a reverse mortgage? , Job Market Paper, Boston University
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To study Reverse Mortgage in SBI Bank 18. Williams, P. (2008). Please release me: A review of the equity release market in the UK, its potential and consumer expectations. London: The Council of Mortgage Lenders 19. Dawson, Catherine, 2002, Practical Research Methods, New Delhi, UBS
PublishersDistributors 20. Kothari, C.R.,1985, Research Methodology- Methods and Techniques, New Delhi, Wiley Eastern Limited. 21. Kumar, Ranjit, 2005, Research Methodology-A Step-by-Step Guide for
Beginners,(2nd.ed.),Singapore, Pearson Education.
II.
Webliography
22. http://reports.celent.com/PressReleases/200803122/RMLIndia.htm 23. http://www.expressindia.com/latest-news/reverse-mortgage-scheme-still-to-catch-upwith-senior-citizens/341057/
24. http://www.reuters.com/article/idUSTRE67F2UX20100816 25. http://www.indiahousing.com/reverse-mortgage-india.html
26. http://www.rupeetimes.com/article/home_loans/reverse_mortgage_in_india_your_propert y_pays_you_a_regular_income_1129.html
27. http://www.rediff.com/money/2009/mar/06perfin-all-about-reverse-mortgage.htm
28. http://www.rediff.com/money/2008/mar/03budget14.htm
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29. http://www.inrnews.com/realestateproperty/india/housing_finance/national_housing_ban k_guidelin.html
30. http://www.nhb.org.in
31. http://www.citefin.com/1405-history-banking-india.html
32. http://proquest.umi.com/pqdweb?did=1447301201&sid=8&Fmt=3&clientId=103388&R QT=309&VName=PQD 33. http://proquest.umi.com/pqdweb?did=1675363931&sid=8&Fmt=3&clientId=103388&R QT=309&VName=PQD 34. http://proquest.umi.com/pqdweb?did=1501703871&sid=8&Fmt=3&clientId=103388&R QT=309&VName=PQD 35. http://www.blonnet.com/2008/06/08/stories/2008060851090500.htm
36. http://proquest.umi.com/pqdweb?did=1584145291&sid=5&Fmt=3&clientId=103388&R QT=309&VName=PQD 37. http://proquest.umi.com/pqdweb?did=1615588591&sid=5&Fmt=3&clientId=103388&R QT=309&VName=PQD 38. http://proquest.umi.com/pqdweb?did=1670977231&sid=5&Fmt=3&clientId=103388&R QT=309&VName=PQD
39. http://proquest.umi.com/pqdweb?did=2145878721&sid=5&Fmt=3&clientId=103388&Q T=309&VName=PQD
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40. http://www.livemint.com/2008/02/20005155/Reverse-mortgages-fail-to-take.html
41. http://www.business-standard.com/india/news/conferencereverse-mortgages-inindia/95154/on
42. http://seniorjournal.com/NEWS/ReverseMortgage/2009/20091021-nCitFacingHome.htm
43. http://proquest.umi.com/pqdweb?did=2173606071&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD
44. http://proquest.umi.com/pqdweb?did=2105641741&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD 45. http://proquest.umi.com/pqdweb?did=1675363931&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD 46. http://proquest.umi.com/pqdweb?did=1449067391&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD 47. http://proquest.umi.com/pqdweb?did=1448559031&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD 48. http://proquest.umi.com/pqdweb?did=1447301201&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD 49. http://proquest.umi.com/pqdweb?did=1340872991&sid=2&Fmt=3&clientId=103388&R QT=309&VName=PQD
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To study Reverse Mortgage in SBI Bank 50. http://proquest.umi.com/pqdweb?did=811929951&sid=2&Fmt=3&clientId=103388&RQ T=309&VName=PQD 51. http://proquest.umi.com/pqdweb?did=1872176421&sid=3&Fmt=4&clientId=103388&R QT=309&VName=PQD 52. http://proquest.umi.com/pqdweb?did=1797390721&sid=3&Fmt=2&clientId=103388&R QT=309&VName=PQD 53. http://www.sbi.co.in/user.htm 54. http://www.sbisyd.com.au/EVOLUTION%20OF%20SBI.pdf 55. http://www.slideshare.net/prabhat1111/state-bank-of-india-presentation
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CHAPTER 10 APPENDIX
138
QUESTIONNAIRE
Disclaimer: All the collected data is purely for the research purpose at an institute level and not for any other commercial or non commercial usage.
Personal Details
Name:_______________________________________________________________________________ Gender: __________ Age: ____________ Address: _____________________________________________________________________________ Contact No.: __________________________________________________________________________
1. Do you own a house with its clear title? Yes [ ] If yes, A. What is the market value of the house? Below 500000 500001 1000000 1000001 2000000 More than 2000000 [ ] [ ] [ ] [ ] No [ ]
B. Is the house used for residence? Yes [ ] No [ ]
2. Are you a Retired person? Yes [ ] No [ ]
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To study Reverse Mortgage in SBI Bank 3. Do you get any pension? Yes [ ] No [ ]
4. Do you need any financial assistance after retirement? Yes [ ] No [ ]
5. Are you concerned about your ability to handle a large unexpected expense such as a health emergency after retirement? Yes [ ] No [ ]
6. Do you know about Reverse Mortgage? Yes [ ] No [ ]
7. If no, do you need details about Reverse mortgage? Yes [ ] No [ ]
8. Are you willing to go for reverse mortgage? Yes [ ] No [ ]
9. Reverse mortgage is used for whom, and what will it be used for? ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
----------Thank You ---------
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To study Reverse Mortgage in SBI Bank

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Dissertation Submitted to the

In partial fulfillment of the requirements for the award of the Degree of

MASTERS IN MANAGEMENT STUDIES

Submitted by: Nikita Hemant Jadhav (Roll No.13)

Research Guide: Prof. Mustafa Sapatwala

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

Place: Mumbai Date: 25/04/2011

Signature of the Student (Miss. Nikita Hemant Jadhav)

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

Place: Mumbai Date: 25/04/2011

Signature of the Director

Signature of the Guide

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

Place: Mumbai Date: 25/04/ 2011

Signature of the student (Miss. Nikita Hemant Jadhav)

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

PAGE NO. 6 7 8 9 11 12 13 22 60 70 94 106 108 117 125 127 131 138

2 2.1 2.2 3 4 5 6 6.1 6.2 7 8 9 10

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

BANKING STRUCTURE IN INDIA: 18 ORGANIZATION STRUCTURE OF THE SBI

MARKET SIZE AND POTENTIAL 47

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

HOUSING FINANCE COMPANY REVERSE MORTGAGE

HECM HOME EQUITY CONVERSION MORTGAGE SCB SCHEDULED COMMERCIAL BANKS

ATM AUTOMATED TELLER MACHINES HUD HOUSING AND URBAN DEVELOPMENT

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

CHAPTER 1 EXECUTIVE SUMMARY

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank EXECUTIVE SUMMARY

Nikita Jadhav (Finance)

Objectives of the research study

I. II. III. IV. V.

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

2.1 Banking industry overview

Nikita Jadhav (Finance)

Nikita Jadhav (Finance)

Nikita Jadhav (Finance)

Nikita Jadhav (Finance)

Fig 2.1: Banking structure in India:

Nikita Jadhav (Finance)

Nikita Jadhav (Finance)

Nikita Jadhav (Finance)

Nikita Jadhav (Finance)

To study Reverse Mortgage in SBI Bank

2.2 INTRODUCTION STATE BANK OF INDIA

Nikita Jadhav (Finance)

Major change in the conditions

Nikita Jadhav (Finance)

Presidency Banks Act

The Benefits of a Reverse Mortgage

Indian Market Potential India-specific Characteristics of Relevance to RM