Srinagar, Nov 01: The Federation of Chambers of Industries Kashmir (FCIK) has urged J&K Bank to adopt a uniform, evidence-based and non-discretionary methodology for valuing mortgaged properties, saying subjective land assessments are restricting MSMEs’ access to credit and impeding compromise settlements.
FCIK has urged the Bank management to issue clear instructions to empanelled valuers and branches for evidence-based collateral valuation and its consistent application in lending and debt settlements.
Many borrowers have reported that Bank-approved valuers rely excessively on informal local and real-estate enquiries reflecting sellers’ “asking prices” rather than verified sale transactions. Such estimates vary with the persons consulted, making them an unreliable basis for determining loan eligibility or debt settlement amounts.
“An asking price establishes what a seller hopes to receive, not what a buyer will pay. A valuation with serious consequences for a borrower must rest on evidence that can be examined and verified,” FCIK observed.
FCIK called for government-notified circle rates and recent registered sales of comparable land to serve as the principal reference points, with documented adjustments for location, access, size, permitted use, tenure and other material factors.
“Circle rates may not invariably equal market value, but substantial departures should be supported by credible evidence”, FCIK maintained.
FCIK also questioned the reported restriction of leasehold industrial-land valuations to allotment premium while proprietary land receives substantial appreciation through estimated market rates. Although the ownership rights differ, both assessments should follow transparent principles reflecting transferability, restrictions and achievable proceeds.
The Federation highlighted borrowers’ concerns over the differing use of market, realisable and distress values. Lower or distress values reportedly determine lending eligibility, while higher market estimates underpin Net Present Value (NPV) calculations for compromise settlements.
“An entrepreneur faces a double disadvantage when the property supports a lower loan while a higher valuation makes settlement unaffordable. The Bank should explain the policy governing this difference and demonstrate how each assessment serves its stated purpose,” FCIK said.
It further sought clarification of the reported requirement that an auction must fail before realisable value can be considered for settlement. RBI’s compromise-settlement framework, it noted, requires prudent reckoning of the current realisable value of collateral under a methodology prescribed in the Bank’s Board-approved policy.
Marketability and foreseeable recovery limitations can be assessed through documentary evidence and professional scrutiny before an auction, the Federation argued, seeking the precise policy and regulatory basis for the reported condition.
Despite FCIK’s repeated appeals against publicly “naming and shaming” distressed borrowers, auction notices identifying them continue unabatedly. The reported failure of majority of such auctions raises questions about whether assessed prices are achievable and reinforces the need to distinguish market estimates from realisable amounts.
“Borrowers should not have to endure an unsuccessful auction merely to establish that a valuation does not attract buyers,” FCIK said.
The Federation stressed that settlement deadlines frequently compel entrepreneurs to sell assets urgently. Expected recovery and NPV calculations should therefore reflect achievable proceeds, recovery time, realisation expenses and properly supported distress-sale circumstances.
FCIK has urged the Managing Director to prescribe verifiable valuation evidence, recorded reasons for adjustments, independent scrutiny and consistent implementation across branches, alongside clear rules governing the valuation basis and NPV methodology for lending and compromise settlements.
“Transparent, evidence-based valuations can spare loan applicants unwarranted demands for additional collateral and enable stressed borrowers to settle their debts on realistic and rational terms. Such an approach would safeguard the Bank’s interests while helping entrepreneurs resolve legacy liabilities and rebuild their livelihoods,” FCIK added.
