Valuation under the SARFAESI Act, 2002

Valuation under the SARFAESI Act, 2002

We have recognized SARFAESI valuers who are fully equipped to provide top-notch services to perform all the due diligence related to finance and compliance. A valuation is an important aspect of knowing the market value of a business. It is an essential process and must be carried out for important tasks like mergers and acquisitions, analysis of the worth of a business, investment analysis, etc. India's government has developed certain rules and sets of instructions to carry out a valuation process properly. We at Enterslice understand that these processes can be very tedious, and proper advisory is required to tackle all the requisites of the valuation process. With hands-on experience in different domains, Enterslice is a one-stop solution for all your business needs.

Overview of the SARFAESI Act. 2002

The SARFAESI Act- Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. The SARFAESI Act allows banks and other financial institutions to auction commercial or residential properties to recover a loan when a borrower fails to repay the loan amount. Thus, the SARFAESI Act of 2002 allows banks to decrease their Non-Performing Assets (NPA) through retrieval methods and restoration. The SARFAESI Act provides that a bank can seize the property of a defaulter without going to law court except for agricultural land. SARFAESI Act, 2002 applies only to secured loans where banks can enforce underlying securities such as hypothecation, pledges, mortgages, etc. A command from the court is not mandatory unless the security is unacceptable or deceitful.

Who is a SARFAESI Valuer?

Definition

SARFAESI valuers are registered professionals with the right to provide valuation reports for the assets being considered for implementation under the SARFAESI Act. These valuers assess the fair market value of the assets, which helps the banks.

Role

SARFAESI Valuers are experts responsible for evaluating the value of secured possessions that borrowers put up as security against loans. These valuations are crucial in establishing the amount to be recovered by banks and financial institutions.

Eligibility

To become a listed SARFAESI valuer, individuals and valuation firms must fulfil certain eligibility standards charted by the CBDT. These criteria often comprise educational qualification, professional experience, and a clean track record.

Key Pointer for a SARFAESI Valuer

Code of Behaviour

SARFAESI valuers are meant to follow a strict protocol of behaviour that sketches their professional responsibilities and principled obligations. The code of conduct safeguards that valuers maintain objectivity, unconventionality, and truthfulness during the valuation process. It also averts conflicts of interest and immoral practices that could destabilize the credibility of valuations.

Valuation Process

The valuation progression directed by SARFAESI valuers involves a wide-ranging assessment of the market value of the secured resources. Valuers use standard methodologies and procedures to arrive at a fair and accurate value. The valuation report primed by the valuer is a critical necessary paper that guides the recovery measures.

Legal Supervision

The legal outline for SARFAESI valuers comprises provisions that allow borrowers to contest the valuation if they have confidence that it is imprecise or prejudicial. This legal administration safeguards that borrowers have a process/procedure to address possible discrepancies and safeguards their rights during the recovery procedure.

Eligibility and Qualifications of a SARFAESI Valuer

The steps involved in registering a valuer under the SARFAESI Act are listed below-

For Agricultural Land

To evaluate an agriculture-related property, the valuer must be a graduate of agricultural science from a recognized university or college and must have worked as a farm valuer for a period of not less than five years. The valuer can be a person formerly employed in a post under the government as a collector, deputy collector, settlement officer, land valuation officer, superintendent of land records, agricultural officer, registrar under the registration act, or any other officer of equivalent rank performing similar functions and must have retired or resigned from such employment after having rendered service in any one or more of the post aforesaid of a collected period of not less than five years.   

For Mines

To evaluate a mine or mines, the valuer must be a graduate with a degree in mining from a recognized institute or university or must possess a qualification accredited by the central government or authority for working under superior services or post under the central government or authority in the field of mining or the valuer must be a person formerly employed in a post under the government as a gazetted officer. The valuer can be a person who was formerly employed in a post under any other department carrying a remuneration of not less than Rs. 2000/- per month.

For Works of Art

The valuer must have specialized with respect to their academics and professional choices in the specific line of arts for the works for which they want to be registered as a valuer. They must have served in any one or more of the following capacities- Superintending Archaeologist or Director General of the Archaeological Survey of India, or they can be director of the National Museum, New Delhi, Prince of Wales Museum, Mumbai, Salar Jung Museum, Hyderabad, Madras Museum, Chennai, Indian Museum and Ashutosh Museum, Kolkata or Bharat Kala Bhavan, Varanasi. They can also be the principal of a government school of art or can be a member of the art procurer group of any of the Lalit Kala Akademi or of the museum.

For Life Interest

The valuer must have been in practise as an actuary under the Insurance Act for a period of not less than 10 years, or they must have rendered continuous service for a period of not less than 10 years as an actuary under the government or in the life insurance corporation of India formed under the Life Insurance Corporation Act. The valuer must have either practised as an actuary or served as such under the government or in the Life Insurance Corporation of India for a cumulative period of not less than ten years.

Valuation of Immovable Properties under the SARFAESI Act

The valuers are required to meet specific educational qualifications and professional experience criteria set by the relevant authority, which can usually be the Central Board of Direct Taxes (CBDT). They must be graduates of civil engineering, architecture, or town planning from a recognized university. They can also be post-graduate in the evaluation of real estate from an accredited university. They can also possess a qualification recognized by the Central Government for recruitment to superior services or posts under the Central Government in the department of civil engineering, architecture, or town planning. They can also be in a post under the government as a gazetted officer or can be in a post under any other employer carrying a remuneration of not less than Rs. 2000/- per month. In either case, they must have either retired or resigned from such employment. A professor, reader, or lecturer in a university or college who has retired or resigned from such employment after serving a tenure of 10 years. These are the requirements for a person to become a SARFAESI valuer for immovable properties.

Application of the SARFAESI Act

• The Reserve Bank of India registers and controls Asset Reconstruction Companies (ARCs)
• It facilitates the securitization of financial assets belonging to banks and other financial institutions, either with or without the benefit of underlying securities.
• Encouragement of the ARC to purchase assets from banks and other financial institutions by issuing bonds, debentures, or any other instrument convertible into a debenture; this will facilitate the smooth transferability of financial assets.
• Giving the asset reconstruction businesses the go-ahead to raise money by providing qualified buyers with security receipts.
• Encouraging the reconstruction of commercial resources obtained through the use of powers designed to be granted to banks and other financial entities, such as the ability to change management or enforce securities.
• Demonstration of any securitization company or asset restoration company established with the RBI (Reserve Bank of India) as a public financial institution.
• 'Security interest' is any kind of security, including mortgage and change on immobile properties, given for outstanding repayment of any financial support given by any bank or financial organization.
• Cataloguing of the borrower’s account as a non-performing asset in harmony with the course given or under procedures issued by the Reserve Bank of India from time to time.
• The officers sanctioned will practice the right of a secured creditor on this behalf in accordance with the guidelines made by the central government.
• An appeal in contradiction of the action of any bank or financial institution to the respective debt recovery committee and a second appeal to the appellate debt recovery tribunal.
• The central government may set up or provide reasons to set up a central registry for the resolution of registration of transactions linking to securitization, asset re-making, and creation of the security interest.
• Application of the planned legislation originally to banks and financial institutions and enablement of the central government to encompass the application of the proposed location to non-banking financial companies and other entities.
• Non-application of the proposed location to security interests in agricultural lands credits less than rupees one lakh and cases where the borrower repays eighty per cent of the loans.

What is Valuation under the SARFAESI Act?

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, was sanctioned by the government of India to offer banks and financial institutions a more effective method for recovering dodged loans and applying security interest without the interference of the court. As a vital part of the SARFAESI course, valuers play a noteworthy role in calculating the fair value of assets and security. It is imperative to determine the fair value of an asset in order to know how much of the amount taken by the borrower/lender can be recovered through a particular building or property. As per the SARFAESI Act, banks and financial organizations have the authority to take possession of the secured assets and sell them, minus the involvement of the court.

Main Role of the SARFAESI Act

Securitization of Financial Assets

One of the main roles of the act is acquiring financial assets by issuing debentures or bonds or by agreement. After realizing the same, redeem the security receipts issued to the QBs.

Reconstruction of Financial Assets

The act also lays provisions to take measures for proper management, sale, debt restructuring, settlement, or possession subject to RBI guidelines from time to time.

Enforcement of Security Interest

The act also lays provisions for enforcing security interest by the secured creditor without the intervention of the court of law.

Other functions

Other provisions state that the valuer must act as an agent of banks or financial institutions for recovery, as a manager of secured assets appointed by the lender, and as the receiver appointed by the court.

Few Benefits of Enterslice’s SARFAESI Valuation

Prevention of Malpractice

Valuation establishes the accurate market value of the property, guiding and aiding better decision-making pertaining to a property. Our valuation experts do not believe in using any malpractice.

Correct Analysis

The final report made by our valuation expert will contain details like information about the final market value of the property, structural feasibility, location and its advantages, etc.

Sale of Property

A property valuation done by a valuation expert will help decide the auction value of a property. The correct valuation will help the borrower know the correct price, too.

Legal Support

Enterslice is fully equipped to provide the best support to handle any legal matter that may come. Our valuation experts will leave no stone unturned to provide best-in-class service.

Duties of the SARFAESI Valuer

A SARFAESI Valuer must keep in mind that the value varies with purpose. The purpose of SARFAESI valuation is to certify the auction value. Before undertaking the assignment, our valuation advisors will ascertain first whether the said property under the valuation process is a SARFAESI-compliant property. The role played by the acclaimed drawing is not very significant in this type of valuation. If the real building area is more than the approved drawing area, then our valuation advisor will evaluate the building for the ‘as is where is’ condition. If the actual extent of the land is more than the deed extended, then our valuation advisor will do the evaluation for the deed extent only. If the available extent is lesser than the deed extent, then our valuer will do the valuation to a lesser extent only. After receiving the engagement letter from the bank, our valuation experts will verify the identification of the property and enclose the photographs along with the report. Enterslice’s valuation advisors will never blindly proceed based on the previous valuation report. They will inspect the property physically again and take fresh measurements. 

Enterslice’s Mission to Success

Enterslice is one of the most highly regarded valuation firms in the county, known for its impartiality, technical proficiency, and independence. Our expert valuers are part of an international team of valuers, where they share understandings and competence to aid effortless work across channels. Enterslice’s in-depth financial, analytical, and economic proficiency has helped clients with better decision-making for over 10+ years.

Service Offered for SARFAESI Valuation

Registered Valuer

Enterslice has a good number of IBBI-registered valuers who are responsible for carrying out valuation processes for different types of objects, whether tangible or intangible. Our experts have hands-on experience in providing valuation services.

Valuation of Land, Building, and Machinery

Enterslice's expert valuation advisors will assess the property in any form, e.g., land, buildings, or machinery, as a registered valuer under the SARFAESI Act, 2002. The valuation advisor will follow the protocol issued by the Ministry of Finance.

Valuation of Art

Our valuation advisors will help in assuming the correct market value of any tangible or art piece that is to be used for recovery. The valuation advisor will assist in providing and following the correct protocol required.

Other Major Services Offered

Intangible assets like stocks and shares can be tough to assess, but Enterslice is fully capable of providing valuation experts when it comes to valuing an intangible asset like stock and shares of a company. Tangible asset valuation is the assessment of a company's physical belongings to determine economic worth. Tangible assets can comprise working capital, land, buildings, and real property like machinery and equipment.  Our valuation experts will do a proper tangible asset valuation and will help boost your negotiation power with tax assessors and skew purchase price allocation (PPA) results during an M&A. Tax computation, compliance duties, financial reporting, risk analysis, etc. are some of the other services offered at Enterslice.

Advantages of Hiring Enterslice Valuation Services

Hiring a valuation service provider like Enterslice offers a bouquet of benefits; some of the key benefits include the prevention of malpractices and helping with the sale of the property. Valuation establishes the accurate market value of the property, guiding and aiding better decision-making pertaining to a property. Our valuation experts do not believe in using any malpractice; a valuation report they make is going to be detailed with accurate statistics and analysis. A property valuation done by a valuation expert will help decide the auction value of a property. The correct valuation will help the borrower know the correct price, too, leading to understanding from both parties and avoiding any conflict of interest in the future.

Risks of Not Hiring Valuation Service Provider

There are many risks associated with not hiring a valuation service provider. One of the key risks is improper assessment. The expertise of an expert valuer is not parallel to that of an incompetent valuer. Property assessment is a crucial part of valuation under the SARFAESI Act. An immature or incompetent approach towards the same can lead to many troubles during the process of valuation. Undervaluation and Overvaluation are some of the biggest risks associated with not hiring a valuation advisor.