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Reverse Mortgage
Reverse Mortgage is the exact opposite of a Home Loan. Anyone, who has a fully owned House can get a loan. The way,
this works, is that his loan money will be divided in chunks (EMI’s) over many years and given to him every month. This
can easily act as Monthly income. At the end of the loan tenure, the Bank stops paying the monthly income. If one of
the spouses dies, the other can still continue living in the house. If both die, the bank gives their heirs two options –
settle the overall outstanding loan and retain the house or, the bank will sell the house, use the proceeds to settle the
outstanding loan and give the rest to the heirs.
How is the loan paid ?
With a reverse home mortgage, no payments are made during the life of the borrower(s). Which means the loan has to
be paid only after both the borrower and spouse die. Since no payments are made during the term of the reverse
home mortgage loan, the loan balance rises over time. In most areas, where the appreciation is good, the value of the
home grows at a much faster rate than the loan balance. Therefore, the remaining equity continues to grow.
When both, the borrower and spouse pass away, the ownership of the home is then passed to the estate or directed
by a living will or will to the beneficiaries. The beneficiaries now own the home and have to sell the home or pay off the
loan. If the home is sold, the reverse home mortgage lender is paid off and the beneficiaries keep the remains. Read
about Real Estate returns over last 10 yrs .
Example :
Mr Ajay is around 62 yrs old, and his wife is 60 yrs old, they live and own a house in Karvenagar, Pune which is worth Rs
1 crore now . They have a daughter and son who are their legal heirs (50:50) . The old aged Ajay and his wife do not
have a monthly income source, so they decide to go in for a Reverse Mortgage loan. The Bank is ready to loan upto 60
lacs to them, which means they will be paid Rs 35k per month for next 15 yrs (just an example.)
Now, they start getting monthly income of 35k per month for next 15 yrs, & they continue to live in the same home.
After this point, their children support them financially and then Ajay dies at age 79. After this, his wife still continues
to live in the house. Sadly she too, passes away at age 85. By this time the total loan outstanding becomes Rs 1.1 crores
(It was 60 lacs at the end of 15 yrs, but after that, it starts growing.)
Now the loan has to be paid off. The son and daughter does not have money to pay to the bank, so the bank decides to
sell off the property. At that time, the price of the house is Rs. 3 crores. The bank sells the house and get total 3 crores,
out of which 1.1 crores is taken by the bank and rest is paid to legal heirs, which they split amongst themselves.
Important Points in Reverse Mortgage
Reverse Mortgage is available to Senior Citizens only. Any house owner over 60 years of age is eligible for a reverse
mortgage. If wife is a co-applicant, she should be above 58.
The maximum loan is up to 60 per cent of the value of the residential property subject to maximum of Rs 50 Lacs.
The maximum period of property mortgage is 15 years with a bank or a HFC (housing finance company.) Minimum
tenure will be 10 years. Some banks like Punjab National Bank offer RML for 20 years also.
The borrower can opt for monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
The revaluation of the property has to be undertaken by the bank or HFC 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. How to do last moment Tax Planning ?
Reverse mortgage rates will vary according to market conditions depending on the wheather borrower has choosen
Fixed or Floating interest rate.
Processing fee for the loan would be between 0.15 per cent and 1.50 per cent of the loan amount.
One can prepay the loan along with the interest any time during the loan tenure. Typically, there is no pre-payment
penalty
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:::Gross Fixed Capital Formation:::
Gross Fixed Capital Formation (GFCF) is a net investment concept within national account which measures the net increase in fixed capital. It measures private and public sector investment spent on formation of fixed capital which includes land improvement, construction of roads, railways, dwelling units, commercial buildings, new machinery etc. It must be noted that land purchases and depreciation are not part of GCF.
Significance of GFCF
An increase in gross fixed capital formation signifies increase in investment in fixed assets which further translated into higher rate of economic growth in long run. Generally developing countries devotes higher percentage of GDP to investment for fixed capital.
IMPORTANT ESSAY TOPIC:
Is Farm loan waiver good for the country?
Indian agriculture is often compared to the act of gambling in the monsoon. With the prevailing drought conditions and falling agricultural outputs in certain areas has fuelled the farmer suicides throughout the country. However, the loan waiver scheme provides relief for many families thereby encouraging them to invest in the next crop. But these benefits don’t offer long term economic gain for farmers. Many economic experts feel that the money waived could be used for investing in infrastructure projects which help to eliminate middlemen and help them to reap maximum benefits of their products.
History of farm loan waivers
In 1990, first ever nation wide farm loan waiver was announced and it cost around Rs 10,000 crore. In 2008, Rs 52,000 crore was released by the Indian government as part of the Agricultural Debt Waiver and Debt Relief Scheme (ADWDRS) which was mainly done to remove the financial indebtedness of the farmers. But it was done before the 2009 general election. In 2014, the Andhra Pradesh government announced a farm loan waiver of Rs 40,000 crore and Rs 20,000 crore farm loan waiver was announced in Telangana region. In 2017, Uttar Pradesh announced a farm loan waiver of Rs 36,000 crore. With state government’s move, Maharashtra followed the scheme with a Rs 35,000 crore waiver
Are farm loan waivers really effective?
According to a report, the loan waiver scheme (1990) proved a costly affair for the banks and economy. It was stated after the years after the waiver witnessed a decline in the recovery rates from financial institutions, since it installed belief among farmers believed that they could default with freedom, leading to defaults of such a high scale that it took the banks several years to recover from its impact. In 2008, the CAG audit revealed lapses and errors. It included fake claims, an inclusion of ineligible beneficiaries, huge reimbursement from a lending institution without proper verification. Many occasions, the farmers entitled to receive the benefits were not included in the list of beneficiaries by the lending institutions. Many farmers tend to use the loans for non-agricultural purposes. Besides, loan application receipts or acknowledgements from farmers weren’t properly maintained. Lending institutions like banks were responsible for implementing the scheme and also monitoring of their own work – which is a clear case of conflict of interest. No nodal agencies where appointed for the monitoring the work. Debt waiver/relief certificates were not issued in many cases for eligible beneficiaries.
In 2014, when another loan waiver of a large magnitude called “Runa Mafi”, in 2014 in Andhra Pradesh and the newly formed state of Telangana. This announcement invited several warnings and criticism from the Reserve Bank of India and the several financial experts. While it cost Rs.40,000 crore in Andhra Pradesh, it is expected to cost Rs. 20,000 crore in Telangana was aimed at helping farmers, who suffered in the cyclone Phailin, that severely damaged crops, the complete details of the waiver schemes in the two states are not available. Besides, there isn’t any clarity about the eligibility conditions , extent of crop loss due to the natural calamity. However, neither loan waiver curbed the rising farmer suicides in both the states. The National Crime Records Bureau (NCRB) data shows that while 160 farmers were reported to commit suicide in 2014 in Andhra Pradesh, the number went up to 516 in 2015. Similarly, in Telangana, farmer suicides recorded an increase of 50% in 2015 compared to 2014.
Why farm loans are waived?
In India, agriculture is primarily dependent on monsoon rains. Since most of the farmers aren’t rich, they invest heavily on crops by taking loans. A good shower brings good yields and repayment of the loan. If there isn’t any rains or insufficient market demand, farmers are unable to pay the loan amount or interest. When there is a continuous monsoon failure, farmers are trapped, with no other option, the farmer are forced to commit suicides. So, farm loans waiver is a good step towards curbing the crisis. Besides, many farmers are force to flee from agriculture to find better career elsewhere, which could lead drop in agricultural yields. So in order to avoid such situations, farm loan waiver acts as a good initiative to attract and retain the farmers. Finally, most of the farmers borrow money from moneylenders who charge exorbitant interest rates and get trapped in a very problematic cycle of debt trap. Farm loan schemes and waivers will divert these farmers to borrow money from banks.
Why farm loan waivers are bad for economy?
Loan waiver schemes disturb loan and credit discipline for the any financial system. Though waivers can be an attractive tool for retaining farmer’s interest in agriculture and avoid fatal incidences, it could lead willful defaults among the farmers. If farm loan waivers are done more than twice, farmers will start to wait for the next loan waiver scheme, which is bad for the economy and agriculture. Besides, taxpayers are at a loss, because loans will be waived only with hard earned money of taxpayers. Rich farmers could take advantage of the situations and push to take loans even if there is no need, in the hope of the next loan waiver scheme. This will impact the poor farmers who are genuinely in need of loans for crops.
Conclusion
Loan waiver is not a permanent solution for agriculture until the fundamental problems are solved. Though it is instant temporary relief from debt preventing suicides, it largely failed on many occasions to contribute to farmers’ welfare in the long term. Besides, there is always a question that to what extent this relief measure can help bring farmers out of indebtedness and suffering always remains a question. Since waivers in India are filled with lack of accountability and lack of proper monitoring reduces the effectiveness of the loan waivers. This coupled with the fact that not all the debt is formal, reduces their effectiveness even more. Since most of the working population of India is dependent on agriculture, loan waiver cannot be avoided. But a proper system of accountability and transparency of waiver will alone ensure the effective working of waiver scheme.
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Levels of Management: Top, Middle and Operational
Levels of management
Different managers manage their enterprise at different level. Management is bound together in hierarchy of relationships.
There are three levels of management in the hierarchy of an organization. These are:
1. Top Management
2. Middle Management
3. Operational ManagementLets’ discuss these levels one by one.
Levels of Management: Top Management
They consist of the senior-most executives of the organisation. Top management is a team consisting of managers from different functional levels, heading finance, marketing etc.
They integrate diverse elements and coordinate the activities of different departments according to the overall objectives of the organisation
They are responsible for the welfare and survival of the organisation.
They analyse the business environment and its implications for the survival of the firm.
They formulate overall organisational goals and strategies for their achievement
They are responsible for all the activities of the business and for its impact on society
Middle Management
It is the link between top and lower level managers. They are subordinate to top managers and superior to the first line managers. They are usually referred as division heads.
They are responsible for implementing and controlling plans and strategies developed by top management.
They are responsible for all the activities of first line managers.
They carry out the plans formulated by the top managers
Supervisory or Operational Management
Foremen and supervisors comprise the lower level in the hierarchy of the organisation.
Supervisors directly oversee the efforts of the workforce.
They interact with the actual work force and pass on instructions of the middle management to the workers.
The authority and responsibility of supervisors is limited according to the plans drawn by the top management.
The quality of workmanship and the quantity of output depends on the hard work, discipline and loyalty of the workers.
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Gross Fixed Capital Formation (GFCF)
Gross Fixed Capital Formation (GFCF) is a net investment concept within national account which measures the net increase in fixed capital. It measures private and public sector investment spent on formation of fixed capital which includes land improvement, construction of roads, railways, dwelling units, commercial buildings, new machinery etc. It must be noted that land purchases and depreciation are not part of GCF.
Significance of GFCF
An increase in gross fixed capital formation signifies increase in investment in fixed assets which further translated into higher rate of economic growth in long run. Generally developing countries devotes higher percentage of GDP to investment for fixed capital.
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SANKALP SCHEME STRIVE SCHEME: OBJECTIVES, FUNDING
The Cabinet Committee on Economic Affairs chaired by the Prime Minister Shri Narendra Modi, has approved two new World Bank supported schemes of Rs. 6,655 crore – Skills Acquisition and Knowledge Awareness for Livelihood Promotion (SANKALP) and Skill Strengthening for Industrial Value Enhancement (STRIVE). Let’s understand SANKALP Scheme STRIVE Scheme.
Skills Acquisition and Knowledge Awareness for Livelihood Promotion (SANKALP) Is Centrally sponsored scheme aims to implement the mandate of the National Skill Development Mission (NSDM). The project will be implemented in mission mode through World Bank support
OBJECTIVES OF SANKALPThe SANKALP program consists of four objectives:
- Strengthened institutional mechanisms at National and State levels to guide planning, delivery and monitoring of market relevant training
- Improved Quality and Market Relevance of SD programs
- Improved access to and completion of skills training for female trainees and other disadvantaged groups
- Expanding skills training through private-public partnerships (PPPs)
The project is funded by three major parts:
- World Bank loan assistance of $ 500Mn (Rs. 3300 crore)
- States’ contribution $100 Million (Rs. 660 crore)
- Industry contribution of $75 Million (Rs. 495 crore)
Skills Strengthening for Industrial Value Enhancement (STRIVE) is a new World Bank funded central sector scheme that has been approved by Expenditure Finance Committee (EFC) in November 2016 for a total cost of Rs. 2200 crore.
OBJECTIVES OF STRIVE SCHEMEThe objectives of the scheme are:
- Improved performance of ITI.
- Increased Capacities of State Governments to support ITIs and Apprenticeship Training
- Improved Teaching and Learning.
- Improved and Broadened Apprenticeship Training.
The basic difference between SANKALP scheme and STRIVE scheme is that SANKALP envisages to get more trainers while STRIVE will incentivize it is to improve overall performance.
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PERFORMANCE APPRAISAL: OBJECTIVES, STANDARDS, PROCESS
Performance Appraisal is a control process in which employee’s performance is evaluated against standards. It enables the comparison of actual performance with pre-determined goal and job expectations
MEANING OF PERFORMANCE APPRAISALPerformance appraisal is the systematic evaluation of employees with respect to his performance on the record of his potential for development. It is the process to understand the abilities of a person for further growth and development It attempts at placing on record certain personality and behavioural characteristics of the individual, effectiveness of the job and contribution to the achievement of organizational goals.
OBJECTIVES OF PERFORMANCE APPRAISAL- To meet legal requirements, including those for standardized forms and procedures, and clear and relevant job analysis
- To motivate employees for better performance of task.
- The ultimate objective of the performance appraisal is to enhance accountability and improve standard of practice
- To maintain records in order to determine compensation packages, wage structure, salaries etc.
- To identify the strengths and weaknesses of employees to place right men on right job.
- To maintain and assess the potential of a person for further growth and development.
- To provide a feedback to employees regarding their performance and related status.
- To provide a feedback to employees regarding their performance and related status.
- It serves as a basis for influencing working habits of the employees.
- To review and retain the promotional and other training programmes.
The important sources of standards for performance evaluation are:
- Job analysis: It is the procedure for determining the duties and skill requirements of a job and the kind of person who should be hired for it
- Job description: It is a written report outlining duties, responsibilities and conditions of the work assignment. It is a description of job and not of the person who happens to hold the job
- Job evaluation: It is the process of analyzing and assessing the various jobs systematically to ascertain their relative worth in an organization.
There are six steps involved in the process of performance appraisal:
- Establishing Performance Standards: The first step in the process of performance appraisal is the setting up of the standards which will be used to compare the actual performance of the employees against the standards set. The standards set should be clear, easily understandable and measurable.
- Communicating the Standards: Once performance standards are set, it is the responsibility of the management to communicate the standards to all the employees of the Organization. The employees should be informed and the standards should be clearly explained to the employees. This will help them to understand their roles and to know what exactly is expected from them
- Measuring the Actual Performance: It is a continuous process which involves monitoring the performance throughout the year
- Comparing the Actual with the Desired Performance: The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance
- Discussing Results: The result of the appraisal is communicated and discussed with the employees on one-to-one basis. The results, the problems and the possible solutions are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employees’ future performance. The purpose of the meeting should be to solve the problems faced and motivate the employees to perform better
- Decision Making: The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers etc.
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