SRINAGAR: The Federation of Chambers of Industries Kashmir (FCIK) has urged Jammu and Kashmir Bank to introduce a uniform, transparent and evidence-based mechanism for valuing mortgaged properties, alleging that inconsistent assessments are restricting micro, small and medium enterprises (MSMEs) from accessing credit and making debt settlements difficult.
In a communication to the bank’s management, the FCIK called for clear instructions to empanelled valuers and branch offices to ensure that collateral valuations are based on verifiable evidence and applied consistently in loan assessments and compromise settlements.
The Federation said several borrowers had reported that bank-approved valuers relied excessively on informal local enquiries and real-estate market estimates, including sellers’ asking prices, rather than verified property transactions. It said such assessments varied depending on the individuals consulted and could not provide a reliable basis for determining loan eligibility or 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,” the FCIK observed.
It proposed that government-notified circle rates and recent registered sale deeds involving comparable properties should form the principal basis for valuation, with documented adjustments for location, road access, plot size, permitted land use, tenure and other relevant factors.
While acknowledging that circle rates may not always correspond to prevailing market values, the Federation said any substantial deviation from them should be supported by credible evidence.
The FCIK also raised concerns over the reported practice of restricting valuations of leasehold industrial land to the original allotment premium, while proprietary land was assessed at substantially higher amounts based on estimated market appreciation.
It said that although leasehold and proprietary properties involved different ownership rights, their valuation should follow transparent principles that take into account transferability, applicable restrictions and the proceeds that could realistically be realised.
Highlighting another concern, the Federation pointed to the reported differences in the application of market value, realisable value and distress value in lending and debt settlement exercises.
According to the FCIK, lower or distress valuations are reportedly used to determine borrowers’ eligibility for loans, while higher market estimates are taken into account while calculating the Net Present Value (NPV) 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,” the Federation said.
The FCIK also sought clarification over the reported requirement that a collateral auction must fail before its realisable value can be considered for a compromise settlement.
Referring to the Reserve Bank of India’s framework for compromise settlements, the Federation said the current realisable value of collateral should be prudently assessed in accordance with a methodology prescribed under the bank’s Board-approved policy.
It argued that marketability constraints and foreseeable limitations on recovery could be assessed through documentary evidence and professional scrutiny even before an auction was conducted. It sought the precise policy and regulatory basis for making an unsuccessful auction a prerequisite for considering realisable value.
The Federation further expressed concern over the continued publication of auction notices identifying distressed borrowers, despite its repeated appeals against what it described as publicly naming and shaming entrepreneurs facing financial difficulties.
It said the reported failure of a majority of such auctions raised questions about whether the assessed prices were achievable and underlined the need to distinguish estimated market values from amounts that could actually be recovered.
“Borrowers should not have to endure an unsuccessful auction merely to establish that a valuation does not attract buyers,” the FCIK said.
The Federation also pointed out that settlement deadlines often forced entrepreneurs to dispose of their assets at short notice. It said recovery estimates and NPV calculations should consequently account for achievable sale proceeds, the time required for recovery, realisation expenses and adequately documented distress-sale circumstances.
Seeking intervention from the Managing Director, the FCIK called for a uniform valuation framework based on verifiable evidence, recorded reasons for adjustments, independent scrutiny and consistent implementation across all branches.
It also sought clear rules specifying the valuation basis and NPV methodology to be followed in lending and compromise settlement cases.
The Federation said transparent and evidence-based assessments would help prevent unnecessary demands for additional collateral from loan applicants and enable financially distressed borrowers to settle their liabilities on realistic terms.
Such a mechanism, it added, would protect the bank’s interests while helping entrepreneurs resolve legacy liabilities and rebuild their businesses and livelihoods.
