Karnataka govt stops banking with SBI & PNB; Directs state depts to withdraw deposits

Bangalore: The government of Karnataka has decided to stop all its transactions with two public sector banks –the State Bank of India (SBI) and Punjab National Bank (PNB)– citing alleged financial irregularities concerning deposits made by the state government entities in these banks.

The government issued a circular directing all departments, state-owned public-sector undertakings, boards and corporations, universities and other state government entities to halt all their transactions, withdraw deposits, and close their accounts with these two public sector banks with immediate effect. The departments have been directed to submit the compliance report by September 20.

Although this is the first time in recent history that a state government is taking such a severe stance against its bankers, the decision to halt state government transactions and withdraw all deposits will significantly impact SBI and PNB.

A senior officer in the State Government said the move would not impact employees’ salary accounts or pensioners’ accounts as they are personal accounts of the staff or pensioners and not government accounts.

Karnataka State Government Employees Association president CS Shadakshari too assured that the decision will not have any impact on the state government employees’ accounts.

According to the government circular, the decision to end all transactions with SBI and PNB was taken due to alleged financial irregularities in deposits made by the Karnataka Industrial Area Development Board (KIADB) and the Karnataka State Pollution Control Board (KSPCB) in PNB and then State Bank of Mysuru (SBM), respectively. SBM merged with SBI in 2017.

The KIADB deposited Rs 25 crore through a cheque in the PNB Rajaji Nagar branch in Bengaluru on September 14, 2011, as a one-year fixed deposit (FD). Two receipts, one for Rs 13 crore and another for Rs 12 crore were given by the Sankari branch of the bank in Salem. After one year, Rs 13 crore FD was encashed. “However, in the second FD [for Rs 12 crore] the money was not returned to date, due to alleged irregularities by the bank officials,” the circular stated.

Despite writing to the bank and holding meetings with them, the issue was not settled and it has now been in the courts for the last ten years, the circular stated.

In the second instance, the KSPCB, in August 2013, had invested Rs 10 crore with the then State Bank of Mysuru’s Avenue Road Branch in Bengaluru as FD for one year.

“Even before the term ended, the bank officials by using fake documents adjusted the money to a loan taken by a private firm. Despite holding several meetings, the bank did not agree to return the money. This case is also now in the court,” the circular stated.

The Comptroller & Auditor General (CAG) in its report raised objections over both the cases. It was also discussed in the Public Accounts Committee (PAC) meetings several times. In the PAC meetings it was decided that the government must stop all its transactions with the two banks and withdraw the deposits.