Political favouritism, loan recycling, network of insiders enabled the scam
TNR Special – Part 2
Sourabh Sood
Shimla: As the Himachal Pradesh Baghat Urban Cooperative Bank crisis unravels further, new information points to a system compromised not by accident but by a pattern of insider-enabled decisions, questionable lending practices and deep-rooted political influence.
According to sources familiar with loan approval processes, the bank perhaps developed an internal ecosystem where preferred borrowers, often politically connected, were offered loans without adequate scrutiny.
Repeat defaulters continued receiving top-ups or restructuring to escape becoming NPAs. There are several allegations that evaluators, bank officials and board members worked in synchrony to artificially inflate property prices and justify large loans.
A former employee says the practice was so common that evaluation sheets were prepared to match the loan amount, not the real market value.
Loan recycling: Technique that hid real damage
A major revelation in the investigation is the widespread use of loan recycling.
This process involved issuing new loans to clear or reduce earlier overdue amounts. Temporarily reducing the overdue balance just enough to show it as a standard account.
Allowing the board and management to present an artificially clean balancesheet during audits. Some accounts were cleaned and reloaded multiple times, hiding the actual magnitude of default.
Internal lapses: When rules became a mere formality
Documents suggest that multiple borrowers secured two loans against the same piece of land, an impossible situation under proper due diligence.
Salary slips, income proofs and business statements were either outdated, exaggerated or not verified at all. In many cases, loan files contained only photocopies, not original documents.
Political appointees on the board
Board members nominated through political channels allegedly exerted pressure on loan sanctioning committees, often bypassing technical objections.
This raises the critical question that were loans being sanctioned to secure political leverage in local elections and committees?
RBI and registrar’s oversight?
Even though RBI inspections hinted at rising NPAs year after year, no stringent corrective steps were taken.
The Registrar of Cooperative Societies also failed to flag the pattern early enough, leading to a situation where
NPAs ballooned. Recovery teams were deployed much later. Properties attached held inflated and unrealistic valuations, making auction recovery nearly impossible. A senior official familiar with the case says that bodies responsible for scrutiny trusted the reports placed before them. But the reports themselves were manipulated.
Real estate mirage: Why auctions keep failing
The bank’s failure to sell even 26 properties in its e-auction for Rs 17 crore points to a larger problem. Properties valued at Rs 40-50 lakh were actually worth Rs 15-20 lakh in real market conditions. Buyers stayed away because they knew the valuations were unrealistic. This strengthens the suspicion that all valuations were inflated at the time of loan sanction, possibly to extend higher loan amounts to selected borrowers.
With such patterns emerging, the investigation strongly suggests that accountability must extend to evaluators who issued inflated assessments.
Branch managers and loan officers who processed and recommended risky loans must also be taken to task. Board directors who approved questionable sanctions, potentially for political or personal benefit, should also be punished. Auditors and oversight bodies who failed to detect or report anomalies.
