Himachal: Overvalued assets deepen Bagat Bank’s crisis

Himachal Pradesh: Most of the properties mortgaged by defaulters to the Baghat Urban Co-operative Bank are not only overvalued, but even if put up for auction, they would not recover even a fraction of the borrowed amount. This poor recovery rate can be gauged from the fact that despite a loan default of ₹3.49 crore, barely ₹1 lakh was recently recovered from a borrower who was initially arrested and later released because he claimed someone else had used the loan for liquor trading. However, inquiries with the Excise and State Tax Department revealed that the individual had defaulted on crores of rupees and that his properties had been marked red in the revenue records, preventing their sale. Therefore, it was doubtful how the bank would recover its funds.
The RBI has imposed several stringent restrictions, including a withdrawal limit of ₹10,000 per customer, effective October 6th. This move has upset over 80,000 customers. Assistant Registrar of Cooperative Societies (ARCS) Girish Nadda confirmed that many properties mortgaged with the bank have been overvalued, and they will not be able to recover a significant portion of the loan. He further stated that each loan portfolio is being examined, and action will be taken against the management board responsible for approving loans at an overvalued rate. He stated that, as per regulations, the uncollected amount will be recovered from the Bank of Maharashtra, which sanctioned loans against the overvalued properties. Whether action will be taken against such officials remains to be seen, as the defaulters are often well-connected individuals who have avoided repayment for years.
Despite the hardship faced by account holders, recovery remains extremely low. Nadda stated, “Eight to nine defaulters have deposited ₹1.5 crore since the ARCS initiated recovery proceedings, including post-dated checks worth over ₹50 lakh.” Of the ₹137 crore NPA, a loan portfolio of ₹40 crore has been audited, while the remaining is under process by ARCS. This financial crisis has arisen due to a lack of timely corrective measures. Previously, in April 2021, the loan facility was frozen after the apex bank imposed a penalty for financial inadequacies. An amount of ₹137 crore remained stuck in NPAs, and its recovery has become a major challenge for the bank. 499 individuals have taken loans worth ₹290 crore. Fifty individuals owe a whopping ₹72 crore. According to documents reviewed by The Tribune, most of these cases are riddled with procedural lapses where officials did not bother to follow banking norms and allowed cash credit limits from branches instead of their domestic units, in violation of banking norms.