India requires universal education, development of valuation standards, practice guidance and institutionalisation of the profession.
The ministry of corporate affairs has set up an expert panel to examine the need for an institutional framework for regulation and development of valuation professionals. To strengthen the practice of valuation and set a common standard for valuation professionals in the country, it has solicited public views on the issues it is deliberating. It is expected to submit its findings very soon, and based on the recommendations the regulatory architecture will be adopted.
An uptrend in deal activity and onset of corporate distress brings with it increased likelihood of fallouts and disputes. Valuation is often the first point of negotiations. Valuations are undertaken for individual assets or liabilities or a group or the entire business as per requirements and applicable regulations.
Independent valuations are also relied upon by management and investors to support decision-making.
Professional experience of a valuer plays a major role in concluding value. We have seen different regulators prescribing different valuation requirements for transactions involving purchase/sale of assets. Some regulators have prescribed some valuation methodologies, whereas others have kept it open to the judgement of valuers. Such conflicting assessment can deter investors, and hence this anomaly must be addressed for ease of doing business in India.
What India needs is an institutional framework for a single standard of valuation and regulation through which valuation professionals can estimate the value of any class of assets with transparency and accountability. India is aligned to global best practices across industries, and this makes it all the more critical that there is a comparable standard of valuation and regulation in the country. One standard, one regulation for the valuation industry will go a long way in achieving the goals that the expert committee has set.
India requires universal education, development of valuation standards, practice guidance and institutionalisation of the profession. The regulation of valuation profession would bring in serious valuation professionals with valuation standards in place. Correct principles can be applied by valuers, leading to more standardised process, the basis of conclusions, reporting formats and disclosures. However, the element of ‘valuer’s judgement’ cannot be taken out of valuation process.
The author is a registered valuer (IBBI), and director, Corporate Professionals Valuations