NPA burden: Baghat cooperative bank stares at crisis as CRAR falls to –18%

The Solan-based Baghat Urban Cooperative Bank is grappling with one of the worst financial crises in its history. With no substantial recovery of dues, the bank faces an uphill battle in lifting its Capital to Risk Weighted Assets Ratio (CRAR), a key indicator of financial resilience. Against the mandated minimum of 9%, the bank’s CRAR stands at a shocking –18%, laying bare the severity of its distress.

CRAR reflects how well a bank can withstand losses. A negative figure signals not just vulnerability but near-collapse. The bank’s leadership has pinned its hopes on recovering its massive Rs 129 crore in non-performing assets (NPAs). But despite months of aggressive action, including arrest warrants against 11 major defaulters and the arrest of five, progress has been painfully slow. Since October 8, NPAs have fallen only from Rs 138 crore to Rs 129 crore, exposing deep structural rot.

Investigations have revealed why recovery is proving so difficult. Many of the properties pledged as collateral were grossly overvalued and several loan files suffered from serious procedural lapses. In one glaring instance, half a biswa of land was accepted as security for a Rs 10 lakh loan. In another, a borrower who defaulted on a Rs 3.80 crore loan had simultaneously stood guarantee for a Rs 4.80 crore loan, both now classified as NPAs.

Worse still, a commission agent who had earlier defaulted on payments to apple growers at the Solan mandi had also failed to repay a previous loan from the bank, leaving almost no hope of recovery. A probe by the Assistant Registrar, Cooperative Societies (ARCS), uncovered multiple cases where the same property had been pledged repeatedly for separate loans, a clear sign of how bank staff bent rules to favour select borrowers.

The fallout is now being felt by nearly 80,000 customers, increasingly frustrated as accountability has remained elusive. Much of the damage traces back to unsecured and irregular lending dating as far back as 2008–09.

Managing Director Rajkumar said the bank is attempting to improve its CRAR through expedited recovery and by urging shareholders to infuse fresh capital. For about 3,000 customers with deposits up to Rs 5 lakh, the only solace is the insurance cover provided by the Deposit Insurance and Credit Guarantee Corporation.