Srinagar: The Federation of Chambers of Industries Kashmir (FCIK) has urged Jammu and Kashmir Bank to introduce a uniform, transparent and evidence-based methodology for valuing mortgaged properties, alleging that inconsistent assessments by bank-approved valuers are affecting access to credit for micro, small and medium enterprises (MSMEs) and making debt settlement difficult for distressed borrowers.
In a communication to the bank management, FCIK called for clear instructions to empanelled valuers and bank branches to ensure that collateral valuations are based on verifiable evidence rather than subjective assessments or informal market enquiries.
The industry body said several borrowers had reported that bank-approved valuers relied heavily on local enquiries and real estate estimates, which often reflected sellers’ asking prices rather than actual registered sale transactions. It said such assessments could vary depending on the individuals consulted and therefore provided an unreliable basis for determining loan eligibility and settlement amounts.
FCIK maintained that government-notified circle rates and recent registered sale transactions involving comparable properties should form the principal basis for valuation. Any adjustments, it said, should be properly documented and take into account factors such as location, road access, land size, permitted use, tenure and other relevant characteristics.
While acknowledging that circle rates may not always correspond to prevailing market values, the Federation said substantial deviations from these rates should be supported by credible and verifiable evidence.
The organisation also raised concerns over the reported differences in the valuation of leasehold industrial land and proprietary land. It said leasehold industrial plots were reportedly valued largely on the basis of their original allotment premium, while proprietary land received substantial appreciation based on estimated market rates.
FCIK said the two categories involved different ownership rights and restrictions but argued that their valuation should follow transparent principles that account for transferability, applicable conditions and the actual proceeds that could be realised from their sale.
Another major concern raised by the Federation relates to the differing use of market value, realisable value and distress value in loan assessments and compromise settlements.
According to FCIK, borrowers have reported that lower or distress valuations are used to determine their eligibility for loans, while higher market estimates are subsequently applied in calculating the Net Present Value (NPV) of compromise settlement proposals.
The Federation said this practice placed entrepreneurs in a difficult position, as lower property valuations restricted their borrowing capacity by requiring additional collateral, while higher estimates during settlement proceedings increased the amount they were required to pay.
It sought an explanation from the bank regarding the policy governing the use of different valuation benchmarks and the rationale for applying them to different financial assessments.
FCIK also questioned the reported requirement that an auction must fail before the realisable value of mortgaged property can be considered for compromise settlement.
Referring to the Reserve Bank of India’s (RBI) framework for compromise settlements, the Federation said the current realisable value of collateral was required to be assessed through a methodology prescribed under the bank’s Board-approved policy.
It argued that factors affecting marketability and the likely recovery from a property could be examined through documentary evidence and professional assessment even before an auction was conducted. The organisation sought clarification on the precise regulatory and policy provisions governing the reported requirement.
The Federation further expressed concern over the continued publication of auction notices identifying distressed borrowers, despite its repeated appeals against what it described as the public naming and shaming of entrepreneurs facing financial difficulties.
It said the reported failure of a majority of such auctions raised questions about whether the prices determined through valuations reflected amounts that prospective buyers were actually willing to pay.
According to FCIK, market estimates should not automatically be treated as realisable amounts, particularly when properties fail to attract buyers at the assessed prices.
The industry body said entrepreneurs facing settlement deadlines were often compelled to dispose of their assets within a limited period, making it necessary for recovery assessments and NPV calculations to account for achievable sale proceeds, the time required for realisation, associated expenses and circumstances necessitating distress sales.
FCIK has urged the Managing Director of J&K Bank to prescribe a standardised valuation framework based on verifiable evidence, documented reasons for adjustments and independent scrutiny, with consistent implementation across all branches.
It has also sought clear guidelines defining the valuation basis to be adopted for lending and compromise settlements, along with transparency in the methodology used for calculating NPV.
The Federation said a transparent valuation mechanism would help loan applicants avoid unnecessary demands for additional collateral and enable financially distressed borrowers to negotiate settlements based on realistic property values.
It maintained that such reforms would protect the bank’s financial interests while helping entrepreneurs resolve outstanding liabilities and revive their businesses.
