ROLE OF VALUERS AND THEIR ACCOUNTABILITY UNDER THE SARFAESI ACT

Role of Valuers and Their Accountability under the SARFAESI Act in India

The SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002, plays a critical role in empowering banks and financial institutions to recover non-performing assets (NPAs) without court intervention. Central to this process are the valuers, who are responsible for assessing the value of assets put up as security. Their role and accountability are crucial to ensure transparency, accuracy, and fairness in the recovery process.

Importance of Valuers under the SARFAESI Act

1. Accurate Valuation of Assets

Valuers are responsible for determining the fair market value of assets mortgaged with banks. This accurate valuation is essential for banks to assess the feasibility of loan recovery and to set a realistic reserve price for the auction of the assets.

2. Aiding in the Recovery Process

The SARFAESI Act empowers banks to take possession of collateral and sell it to recover outstanding loans. Accurate asset valuation by qualified valuers ensures that the recovery process is based on reliable financial data, helping banks minimize losses from NPAs.

3. Ensuring Compliance with Regulations

Valuers must comply with the guidelines set forth by the Indian Banks Association (IBA) and the Institute of Valuers. Their valuations must adhere to the regulatory framework to avoid legal discrepancies and ensure that the process is fair and transparent.

Qualifications and Standards for Valuers

 

1. Professional Expertise

Valuers must possess relevant qualifications, including degrees in valuation, engineering, architecture, or related fields. They should be registered with recognized institutions like the Institution of Valuers or the Royal Institution of Chartered Surveyors (RICS).

2. Adherence to Standards

Valuers must follow the standards prescribed by the International Valuation Standards Council (IVSC) and the guidelines provided by the IBA. This ensures uniformity and reliability in the valuation process across different financial institutions.

Accountability and Legal Framework

 

1. Legal Accountability

Under the SARFAESI Act, valuers are accountable for their professional conduct and the accuracy of their valuations. Incorrect or biased valuations can lead to legal consequences, including penalties and loss of licensure.

2. Role of Regulatory Bodies

Regulatory bodies like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) oversee the functioning of valuers. They ensure that valuers adhere to professional standards and take appropriate action in cases of malpractice.

3. Impact of Incorrect Valuation

Incorrect valuations can have severe consequences, including financial losses for banks and legal disputes with borrowers. Valuers must ensure due diligence and objectivity to maintain the integrity of the valuation process.

Challenges Faced by Valuers

 

1. Market Fluctuations

Valuers must account for market volatility and economic changes, which can impact asset prices. Accurate forecasting and regular market analysis are essential to provide realistic valuations.

2. Pressure from Stakeholders

Valuers often face pressure from banks and borrowers to adjust valuations favorably. Maintaining professional integrity and resisting undue influence is crucial to ensure unbiased valuations.

3. Technological Advancements

Adopting modern valuation techniques and tools, such as automated valuation models (AVMs) and data analytics, can enhance the accuracy and efficiency of the valuation process. Valuers must stay updated with technological advancements to remain competitive.

The role of valuers under the SARFAESI Act is pivotal in ensuring the effective recovery of NPAs by banks and financial institutions. Their accountability, adherence to professional standards, and ability to provide accurate valuations are essential for maintaining the transparency and fairness of the asset recovery process. Despite challenges, valuers must continue to uphold the highest standards of professionalism to support the financial system in India.