Senior citizens invested in a reverse mortgage can switch over to a new bank

Senior citizens who have gone in for reverse mortgages, can approach any bank that offers an improved, amended product—for a switchover to the new reverse mortgage model—which offers higher monthly returns

With competition expected to grow in the reverse mortgage segment, (see here), senior citizens will have more reasons to rejoice. While new customers will be able to choose from a variety of products, the existing 6,400 customers who have gone in for reverse mortgage schemes from various banks will be able to switch over to a new bank of their choice.

According to National Housing Bank (NHB) officials, existing customers would be allowed to change their bank (the bank which has currently issued a loan on the reverse mortgage model), if they wish to do so.

“The earlier loans that have been sanctioned to the senior citizens by the banks were basically based on regular loan schemes. They have been allocated a certain amount, based on which they are given payments on a monthly basis. If a person has taken a loan in 2008 or 2009, he would have availed a maximum of one year or two years of monthly payments.
                                                                                                                      
“The balance would still be left with the bank, so he can utilise the unutilised balance payment amount, for the purpose of the new loan—he can simply convert that into a second loan,” said V Sambamurthy, regional manager, NHB.

In the current scenario, wherein only Central Bank of India (CBI) is providing a better product compared to the original one launched in 2007, the existing 6,400 customers can approach CBI to buy out their loans, in order to switch over to the new model.

If the existing customer is a customer with CBI itself, there would be minimal issues and the customer can switch to the new product. However, if the senior citizen has his reverse mortgage loan linked to another bank, he will have to approach the CBI to buy out the loan.

“The only bank which is offering this (a new product) at present is CBI. If the loan has been taken from another bank, CBI can always buy out the loan,” added the official.

The choice lies with the customer whether he wishes to switch to another bank or not. However, the ultimate discretion lies with CBI or will lie with any other bank that may offer a competitive product in the future—whether to buy the loan or not—depending on certain evaluations.

“They (the existing customers) can work out a deal between the two banks. The borrower can express the desire and approach CBI to buy out the loan. However, the ultimate decision will lie with CBI,” Mr Sambamurthy explained.

Such switchovers will not only allow the customer to avail of better products, but also allows scope for a new property evaluation.

“Probably, in this two-year period, the house value may also have gone up. A switchover could also help options like devaluation, if necessary or if they (the senior citizens) so desire,” the official stated.

Since its launch, around 6,400 customers have availed the reverse mortgage schemes under the original model. A total amount of around Rs1,200 crore has been sanctioned. The new model allows better monthly payments, (see here).

Thus, a switchover option will prove beneficial to existing customers. This switchover will be possible only when CBI starts the new scheme, which is right now on hold because of some tax-related issues.

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BSNL employees call off strike

BSNL employees, who were protesting the Sam Pitroda panel's recommendations, which suggested voluntary retirement to one lakh staff and 30% disinvestment as part of improving the financial health of the State-run unit, have called off their strike

Within hours of going on an indefinite strike, the employee unions of State-run Bharat Sanchar Nigam Ltd (BSNL) on Tuesday called off the protest after the government assured them that the issue of disinvestment in the telecom company will be referred to a Group of Ministers (GoM).

"We have assured them (unions) that the issue of disinvestment will be referred to a GoM and they would be consulted before taking other decisions with regard to BSNL," telecom minister A Raja told PTI.

A high-level panel, headed by Sam Pitroda and banker Deepak Parekh and telecom secretary PJ Thomas as members, had recommended 30% disinvestment in BSNL and voluntary retirement to over one lakh staff as part of steps to improve the financial health of the State-run company.

The apex body of BSNL unions claimed that over three lakh of its members had joined the strike action this morning. The joint forum of unions has both executives and non-executives as members.

Within hours, BSNL chairman Kuldeep Goyal met the telecom minister and sought his intervention. "As the management has agreed to look into our major demands, we have decided to call off the indefinite strike," said VAN Namboodiri, convenor of the Joint Action Committee of BSNL Associations and Unions.

The Sam Pitroda panel was set up by prime minister Manmohan Singh to suggest ways to improve BSNL’s financial health.

BSNL's profits plummeted to Rs178 crore in 2009-2010 (up to December 2009) from over Rs575 crore in 2008-09 as it is rapidly losing market share to new entrants. The State-run company has 91 million users, both mobile and land line. BSNL offers services across India, except Delhi and Mumbai.

Besides the scrapping of the divestment plan, the unions are also demanding absorption of the 1,500 ITS officers, who have been continuing on deputation for the last 10 years.

The unions are also protesting sharing of BSNL infrastructure, including cables and towers, with private telecom companies.

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Does the root of the SEBI-IRDA fight go back to the finance ministry?

Contrary to popular belief, SEBI’s clamp-down on ULIPs may not be of its own doing; the roots of the ongoing turf war can be traced back to the finance ministry’s thought process developed many months ago

The current full-blown turf war between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) over the regulatory purview of unit-linked insurance plans (ULIPs) may have been silently stirred up under the roof of the finance ministry, much before the issue came to the limelight. While experts are sympathising with SEBI’s views on the indiscriminate mis-selling of ULIPs or IRDA’s legal jurisdiction (depending on which side their sympathies are), it appears that a section of the finance ministry is completely backing SEBI, which may have encouraged the capital-market regulator to go hammer and tongs at the insurance companies. SEBI, in a stunning order dated 9 April 2010, had banned 14 life insurance companies from distributing and marketing new ULIPs to customers.

Indeed, a series of presentations and papers by Dr KP Krishnan, the joint secretary (capital markets), before different gatherings since November last year suggest that the predatory incursion by SEBI has its roots in the finance ministry, much before it became a full-blown order. The papers and presentations explicitly highlight the urgent need to address the issue of hybrid products that ‘straddle’ and ‘impact’ different regulators. They openly call for the establishment of the Financial Stability and Development Council (FSDC) to improve regulatory co-ordination and resolve ‘cross-cutting issues’.

Moneylife had pointed out earlier (see here), that there was something amiss in this bizarre drama that is being played out between the insurance and capital market regulators. We were among the first to reveal that this was possibly a deliberately created crisis by vested interests in the finance ministry.

In a draft paper to be presented before the ‘Conference on South Asian Financial Systems at a crossroad: Promoting Stability and growth’ in November 2009, Dr Krishnan specifically highlighted the blurring nature of financial products. The exact text in the paper is: “Another issue is that much of the growth in insurance penetration is as a result of selling of products such as the Unit Linked Insurance Plans (ULIPs) which is essentially a mutual fund product.  The relatively better performance of ULIPs could be attributed, inter alia, to higher commission in insurance ULIPs than for mutual fund products. Thus, there is a blurring of products wherein financial instruments are partaking of multiple characteristics of investment, pension and insurance etc. Some changes in regulatory architecture would be necessary to address this, on which we focus later in the paper,” mentions the draft.

It is obvious that the finance ministry has been aiming for the creation of a super-regulator euphemistically called FSDC. The overlapping nature of investment-cum-insurance products offered by life insurance companies provided the right cause for the ministry to make a case for it. With SEBI providing a spearhead for spreading the finance ministry’s agenda, the issue has now been perfectly orchestrated from inside the corridors of power.

This explains the curious attitude of a seasoned politician like Pranab Mukherjee, the finance minister. The minister appeared helpless in resolving this tussle. The minister had earlier indicated that he is powerless to rein in SEBI, asking the two regulators to seek judicial help to resolve their differences. How convenient is it that the second most powerful minister in the Cabinet completely washed his hands of the matter? We now know why.

The finance ministry is refusing to come out in the open and admitting the role it has played in fostering this regulatory battle which it can control and dictate the outcome. Meanwhile, SEBI and IRDA have been left grabbing each other’s throats.

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COMMENTS

chandra shekhar

5 years ago

Let the REGULATORS work get "Divided"
amicably between d SEBI n IRDA & "FM"
sees 'Investor should not suffer', cos of in-fighting ......
Once LINES are drawn, dust would settle down ........

Chandra ......

HIMANSHU RAVAL

7 years ago

SEBI should have done this in advance before 5 years. but still its better late then never. Customers are suffering due to heavy Allocation charges in ULIP. ITS A FACT

Prof. Bajaj

7 years ago

I don't think IRDA is a regulator at all. It is now a body to protect the interest of insurance companies and insurance agents. It does not seem to protect a single interest of the poor investors.

If it were strict enough, insurance companies would have taken the extra effort to detect such fraudulent activities and also taken strict action against them. But as everyone knows, that they will only gain at the cost of investors, everyone is turning a blind eye.

Reminds me of the Mahabharat, where Dhritharashtra (IRDA) is keeping mum on the atrocities done by Duryodhan (Insurance Companies) and Dushasan (Insurance agents) to strip down draupadi (investors).

We wish someone acts lord krishna and saves Draupadi.

Alok Bhola

7 years ago

SEBI is the Capital Markets regulator, IRDA is the Insurance regulator. As the stock market operations of ULIPs come under Capital Market operations, they clearly fall under the purview of SEBI, not IRDA. IRDA should limit itself to regulating the (small) insurance premium component of ULIPs, and work with SEBI to enable SEBI to regulate the (large) investment component.

Anand Mohan Agarwal

7 years ago

SEBI Vs IRDA war over ULIPs. I have prepared a small note and put it up on http://sites.google.com/site/fitnessfundas/home/sebi-vs-irda

Please go through it to get the maths right.

Manoj

7 years ago

It is a universally understood concept that when someone works, he/she will get paid for it. The same applies to insurance agents also. They too need to make a living. Let us look at this scenario. Today LIC alone has more than 15 lakh agents across the country. Now if it stops paying commission to them for the work they do, what is the alternative? The investors in this country do not want to pay the advisors for their services. Trust me, I know this. They want everything FREE. That being the case, LIC has to start recruiting staff in large numbers to sell their products. As an independent financial advisor, I can atleast compare two products and suggest to my clients the better one to buy. But as an employee, I will be forced to sell whatever my employer tell me to sell!! Which is a better scenario??

M.R.Borkar

7 years ago

It is not that Fin.Min has thought of it now. The seed was planted some 10 years back by Dy.Gov. RBI (Dr.Reddy)
in one of his speech, if I recollect correctly, on Universal Banking. This can be traced in RBIs archives or
collection of his speeches that has been published - I think Fin. Reforms etc.

Ajay Brahmbhatt

7 years ago

Dear Sucheta ji,

Regarding -- SEBI-IRDA fight -- think about :

Who is Biggest Mutual Fund ??

Who is Biggest Private Insurance Player ??

Some crook from competitor's camp is trying to "damage" who ???

Everything will boil down to one name !! yes the "great enemy brothers"

From FINMIN to SEBI and SEs ALL are 99.999999% corrupted criminals and crooks....who will listen to me or you !!

Everybody is for making "tonnes of quick money" which can last for 1000 generations...!! that the level and spread of greed !!

ONLY GOD CAN SAVE ALL OF US !!

Jay Bharat, Jay Jawan, Jay Kishan !!

Bharat Mata kiJay ho !!

Be your own protector is the only thing we have to learn !!

best wishes for all innocent citizens of my Bharat Desh !!

Ajay - Vadodara - Gujarat

Ravindra Shetye

7 years ago

No doubt the ULIPs are missold. Clients are not told that the Insurance Premium (a hefty one at that) will be deducted from the earnings of the Fund (Yes. It is a Mutual Fund in different garments). I am a victim. The details were not told but I read afterwards on signing the papers believing the Broker. Now I find that I am stuck at least a few years. Surely the temptation to missell to a known customer must be very attractive.

Hemant Beniwal

7 years ago

They are protecting Insurance Industry and Insurance Agents…But where are the investors here..

IRDA wants companies to pay to agents to sell their policy. Now when an agent will get paid from the manufacture, he will work for the benefit of the manufacturer and not for the investor.

* There is rampant misspelling happening in case ULIPs. But IRDA is silent
* There are less then 5% of Indians who are insured. Indians have not understood insurance. But IRDA is silent
* Out of those insured average Sum Assured is less than Rs.90000 and less than Rs. 26000 in case of ULIP. But IRDA is silent
* Media has pointed out this kind of mis-selling number of times. But IRDA is Silent

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