Banks set to have standardised valuation practices: IBA Chairman

Mumbai: If Indian Banks' Association (IBA) has its way, the banks in the country will be having a standardised approach towards valuation in the days to come. This indication was given by IBA Chairman Rajkiran Rai G, who also happens to be the Managing Director and CEO of Union Bank of India.

Considering the interconnected banking (like consortium), the empanelment needs standardisation as one bank may be affected by the other bank's practices and policies related to valuation.

"IBA would ensure that each member bank prefers valuers registered with Insolvency and Bankruptcy Board of India (IBBI) and empanelled with IBA because such valuers are subject to two-tier regulations and they are mandatorily required to go for continuous professional development," Rai said, while addressing a virtual event organised by IBVA (International Business Valuers' Association).

An epochal change sweeping India is the valuation practices and the banks are one of the major users of valuation services. Considering the importance of this topic, there is a need to have dialogue on a continuous basis between the service provider and service users, he said.

Poor valuation or 'objective-driven valuation' or 'litigation-driven valuation' creates an environment of mistrust, undermines market confidence, increases counterparty risk positions and cost of transactions that ultimately reduces economic growth. As a result of poor valuation, the seller can accept low price due to lack of understanding of the value, the buyer can pay too much that may lead to bankruptcy, and the government can collect tax less than what is otherwise due.

Perhaps, he said, the biggest role of the valuation professional is to protect the interest of the public.

"The valuation is a subjective assessment of fair value of assets following the valuation standards. The values and professional integrity are very important in this profession," said CA Avineesh Matta.

Credible valuations are critical to the effective functioning of the government, business and financial markets. Simply stated, sound valuation has a direct link with financial stability. The valuation should not be carried out only to 'please' the appointing authority. In no way valuer is 'selling' the valuation report.

"I agree with the statement that we need more 'logician' than a 'number-cruncher', said Rajiv Kumar Singh, CA & Director at Union Bank of India, adding, "We don't need objective-driven valuation and malleable valuer".

According to CA Denesh Singh, "We don't want low-balling. Limitations, caveats and disclaimers in the valuation report should not be such that the user of the valuation report cannot make any decision or they should not be used to restrict a proper diligence expected from a valuer."