TNR Special Series – Part 4
Sourabh Sood
Shimla
As the Baghat Urban Cooperative Bank crisis unfolds, one question rises above all others, where did the money actually go? The bank lent crores of rupees to a small circle of borrowers, but when investigators looked into how these funds were used, they found almost nothing on the ground. Projects remain incomplete, machines are missing, properties are locked in disputes and businesses that took large loans no longer exist in their original form. The visible assets are too few and the disappearance of money points toward a deeper financial maze.
loan money was often taken out in large cash
Documents and internal notes suggest that loan money was often taken out in large cash withdrawals within weeks of sanction. In some cases, the amount was withdrawn on the very same day. There are instances where borrowers took a loan meant for construction or business expansion but instead used the money for unrelated personal expenses, repayment of older private debts or investment in ventures that were never declared to the bank. A recurring pattern appears where funds were diverted quietly to other family-owned firms or relatives’ accounts, making it difficult for the bank to establish a direct trail.
In several high-value accounts, the money was routed through what insiders describe as “paper companies.” These are firms that existed only on documents : no staff, no office and no real business activity. They were created for the sole purpose of receiving and moving money. Once the funds passed through two or three such layers, tracing them became almost impossible. In a few files, investigators found payments made to suppliers who did not exist or contractors who never worked on any project. These transactions were approved without verification, raising serious questions about the involvement of bank officials themselves.
Use of Benami Arrangements
Another concerning discovery is the use of benami arrangements. Some loan amounts were invested in properties that were not registered in the borrower’s own name. These assets are now outside the bank’s reach, while the bank is left holding collateral that is either overvalued, legally disputed or unsellable. Insiders say that this system worked because of the confidence borrowers had that no strict action would ever be taken against them. The relationship between some borrowers and members of the bank’s Board created a sense of protection, enabling misuse of funds without fear of consequences.
A closer look at internal communication reveals that warnings were raised multiple times. Branch managers reported irregular withdrawals, lack of progress at project sites and suspicious fund movements. However, these warnings were either ignored or dismissed. In some cases, loan officers were pressured to remain silent. Audit teams did note issues, but their observations were softened in final reports, allowing the problem to grow unchecked. The official monitoring system that should have stopped fund diversion simply did not function.
RBI inspection reports highlighted rising NPAs year after year
Even the regulatory bodies appear to have been caught off guard. RBI inspection reports highlighted rising NPAs year after year, yet the collapse continued. The Registrar of Cooperative Societies, too, did not intervene with strong corrective action. Many current and former insiders say that if stricter supervision had been applied even two years earlier, losses could have been controlled. Instead, borrowers kept diverting funds, projects remained stalled and the bank’s financial health kept weakening.
Now, This is The The Biggest Challenge
Today, as the crisis sits in public view, the biggest challenge is not just recovery but reconstruction of the money trail. The funds passed through too many hands and too many channels—cash withdrawals, benami properties, paper companies and family-owned ventures. In many accounts, the original purpose of the loan has completely disappeared, leaving only confusion and unanswered questions. What remains clear is that the collapse was not caused by failure alone but by a systematic misuse of the banking system over several years.
