Like other cooperative institutions in Himachal, bank didn’t function as purely financial entity
TNR Series – Part 7
Sourabh Sood
Shimla: As the layers of the Baghat Urban Cooperative Bank crisis peel back, one thread consistently appears beneath every major decision, every questionable loan and every ignored warning, the deep and long-standing influence of political power.
The bank, like many cooperative institutions in Himachal Pradesh, did not function as a purely financial entity. Instead, it operated inside a political web where decisions were shaped less by financial logic and more by loyalties, affiliations and pressures that had nothing to do with banking. This political culture slowly and silently became one of the biggest reasons behind the bank’s collapse.
Members of the bank’s board were often appointed based on political considerations rather than professional experience. Once in power, these board members used their positions not just for management oversight but to influence loan sanctions. Several insiders say that loan files linked to politically connected individuals rarely faced serious scrutiny, regardless of collateral quality or repayment capacity.
The bank became a convenient tool for political groups to extend favour to supporters, contractors and business associates. Many borrowers openly admitted during internal interactions that they felt confident while taking loans because they believed “the Board is with us.”
Decision making shifted from financial assessment to political alignment
Over the years, the bank’s decision-making shifted from financial assessment to political alignment. When a borrower with strong political backing applied for credit, objections from staff or valuers were brushed aside. Meetings that were supposed to analyse risk became platforms where decisions were already made before discussions even began.
This not only weakened the bank’s culture but also sent a clear message to the staff — questioning politically backed loans was neither useful nor welcome. Once this message became rooted in the system, the decline accelerated.
Some defaulters managed to secure multiple extensions
The political interference did not stop at loan approvals. It extended into recovery processes as well. When large borrowers stopped repaying their loans, recovery notices were delayed or softened. Some defaulters managed to secure multiple extensions simply because they had the support of influential figures.
A few even attended board meetings unofficially, using personal proximity to board members to negotiate repayment relaxations. Each such instance weakened the authority of the bank further and deepened the belief that political influence could override financial responsibility.
Bank’s long-term interests were forgotten
The bank also became a stage for internal power struggles. Whenever a change in political leadership took place in the region, the board’s internal dynamics shifted. Members loyal to one side were replaced or sidelined by those aligned with another.
In this tug-of-war, the bank’s long-term interests were forgotten. Files, appointments, recovery decisions and even auditor recommendations were influenced by which political group controlled the board at that particular time. What should have been a financial institution slowly turned into a battleground of factions and the biggest casualty was the bank’s fiscal discipline.
Inspections failed to trigger strict action
Even regulatory oversight was affected by these political undercurrents. Inspections that should have triggered strict action were allowed to remain soft, because pushing too hard could mean clashing with the wrong individuals.
The Registrar’s office also operated in a space where political expectations often dictated the pace and seriousness of interventions. As a result, even when early warning signs appeared, enforcement was neither timely nor strong enough to prevent the crisis from deepening.
Culture where silence became safest choice
Ordinary staff members today admit that political presence was so strong that many officers avoided taking bold decisions. They feared backlash, transfers or accusations if they acted against politically protected borrowers.
This created a culture where silence became the safest choice, even when files clearly reflected risk. Some employees say that they repeatedly raised concerns in internal meetings but were discouraged with subtle reminders about “who the borrower belongs to”. When political influence becomes part of daily functioning, financial discipline becomes the first casualty — and that is exactly what happened at Baghat Bank.
Now, as the institution struggles under the weight of massive NPAs, the political forces that once treated the bank as a tool are quietly distancing themselves. But the consequences of their decisions remain etched in every unpaid loan and every ruined balance sheet. The crisis is not just a financial failure, but a political one.
It illustrates how a cooperative bank, intended to serve the public, was instead used to serve a network of power, influence and personal gain. In the end, the system designed to protect people became a system that protected only a chosen few.
