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Sachin Sandhir, MD & country head, Royal Institution of Chartered Surveyors (RICS) India discusses the need for consistent valuation standards and professional valuers.

An accelerating number of cases reporting corporate governance issues, bad debts and frauds call for some introspection on what is happening and why and more importantly what needs to be done to limit such incidents.

Let’s consider a recent case where a bank branch lost Rs4.16 crore due to the wrong evaluation of mortgaged property and negligence of the bank authorities. The bank gave a loan based on the property value of Rs6.27 crore valued in 2000. When the loan defaulted, as part of investigation, the property was re-valued and found to be worth no more than Rs2.24 crore. We may identify/conclude three reasons for this unfortunate incident.

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Firstly, there was a lapse on part of the bank that deviated from its set of rules. The bank waived off the need for a fresh valuation before releasing the loan because the earlier valuation was done by a government approved valuer.

Secondly, it highlights how the term ‘Government Approved Valuer’ can be misunderstood to represent the highest levels of accuracy. It may not always be true.

A certain section of people merely registered or empanelled with the government for the purpose of wealth tax, whose skills are limited to that enactment only, tend to misguide by claiming that they are ‘Government Approved Valuers’.

Thirdly, this brings to light that when times were good, how everyone in the maddening race for growth overlooked the basic hygiene factors. In the greed for fast expansion of its loan portfolio, the bank undermined accurate valuation or the fact that valuation is ascertained by market dynamics and thus cannot be taken as a onetime activity.

In another case a bank auctioned a mortgaged property at 20% of the valuation. Investigation later revealed an alleged conspiracy involving bank officials, evaluators and the customer as the property mortgaged was agricultural land used as security against a commercial loan.

While a larger chunk of such cases are a result of laxity on part of key stakeholders and inadequate regulatory mechanism for which measures are being sought, a substantial part of the problem can be resolved with supplementary aids such as uniform valuation standards and professionally qualified valuers who conform to such standards.

Valuation standards
Moving away from this particular case, it is a known fact that property valuation methods in India are as varied as the property laws in different states. In absence of any prescribed standard, guidelines or reporting formats, valuers have a lot of flexibility in tweaking the assumptions, calculations and approaches.