Inside job: Baghat bank’s own staff exploited loopholes, causing losses

Even as the management of the Solan-based Baghat Urban Cooperative Bank intensifies efforts to recover its ballooning Rs 126-crore loan portfolio, startling revelations show that some of the bank’s own employees had exploited systemic loopholes, causing further financial damage to the already stressed institution.

A former Managing Director, who served between 2016 and 2021, was sanctioned a Rs 40-lakh housing loan in December 2018. Instead of repaying it as per schedule, he defaulted repeatedly. The loan was finally classified as an NPA in January 2024, despite the presence of another bank employee who stood as guarantor and a property pledged against it. Shockingly, the property has still not been auctioned, even though the outstanding amount could have been recovered from the officer’s post-retirement benefits.

“Barely a small amount was repaid while Rs 35.80 lakh remains outstanding,” a bank officer revealed. The episode underscores how the bank had effectively become a free-of-charge ATM for influential individuals, including its own staff, who accessed large loans without proper repayment discipline.

A senior bank official confirmed that the institution has invoked the SARFAESI Act, 2002, preparing a case that will be forwarded to the District Magistrate for approval. “Once we receive the DM’s nod, we will take possession of his property located in the Khleen area of Solan,” he said.

However, doubts linger over how much the bank can realistically recover. A significant number of properties pledged as collateral are grossly overvalued and the bank has a poor record in successfully auctioning them. On November 20, all 28 properties listed for auction failed to attract buyers, primarily due to inflated valuations. Another attempt is scheduled for December 12.

Despite aggressive follow-ups with loan defaulters, the bank’s NPA figures have shown only marginal improvement. NPAs have dipped from Rs 138 crore to Rs 126 crore since October 6, while the number of loan defaulters has reduced slightly from 499 to 460.

The bank remains under severe financial strain as it attempts to demonstrate progress before the Reserve Bank of India reviews its control measures. The RBI-imposed restrictions — effective October 6 — cap withdrawals at Rs 10,000 per customer for six months and bar the bank from issuing new loans, renewing credit limits or accepting fresh deposits without prior approval.