Karnataka govt orders state departments to close accounts with SBI and PNB; here’s why

Karnataka Government has instructed all its departments, public sector units, universities, and subordinate organizations to cease all transactions with the State Bank of India (SBI) and Punjab National Bank (PNB), as quoted by The Economic Times.

The Finance department issued a circular to all department heads, highlighting that the Karnataka Industrial Areas Development Board (KIADB) was unable to recover a deposit from Punjab National Bank (PNB), while the Pollution Control Board faced a similar issue with the State Bank of India . Despite multiple rounds of negotiations with the two public sector banks, the government’s efforts were unsuccessful, the circular noted.

"As the matter is currently Sub-Judice, it will not be prudent to make any specific comment. However, the Bank is committed for amicable resolution of the matter and is in discussion with Government of Karnataka," PNB Bank said in a statement.

"Accounts held in the State Bank of India and Punjab National Bank by state government departments, public enterprises, corporations, local bodies, universities, and other institutions must be terminated forthwith. Additionally, no further deposits or investments are to be made in these banks," the order said.

Why Karnataka govt took this decision?

The finance department, overseen by Chief Minister Siddaramaiah, has directed all department heads to promptly close accounts and fixed deposits with the two banks and report their compliance to the government.

The circular also referenced the concerns raised by audit authorities and the legislature's public accounts committees regarding this issue.

This action comes in response to reports of two fraudulent transactions. The first case concerns a ₹25 crore fixed deposit made by the Karnataka Industrial Area Development Board at PNB's Rajajinagar branch on September 14, 2011. Although the deposit term has ended, PNB allegedly returned only ₹13 crore, and attempts to resolve the issue over the last decade have failed.

The second case involves a ₹10 crore fixed deposit at the former State Bank of Mysore, now part of SBI. The deposit, made by the Karnataka State Pollution Control Board, was misused to settle loans for a private company using forged documents. Efforts to recover the funds have similarly failed.