Karnataka govt orders state departments to close accounts in SBI & PNB

The Karnataka government on Wednesday ordered all departments to close their accounts in SBI and PNB. All state departments have been directed to close accounts and recover deposits. No further deposits or investments will be allowed in these banks. The decision has been taken over alleged misappropriation of funds.

The state government has set September 20 deadline for all departments to comply, according to a circular dated August 12 from PC Jaffer, secretary (budget & resources), finance department, which has been approved by CM Siddaramaiah.

"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.

Additionally, accounts held by state government departments, public enterprises, corporations, local bodies, universities, and other institutions in SBI and PNB must be terminated forthwith.

This action follows reports of two fraudulent transactions. The first involves a fixed deposit of Rs 25 crore at PNB’s Rajajinagar branch, started by the Karnataka Industrial Area Development Board on September 14, 2011. Despite the deposit term ending, PNB allegedly released only Rs 13 crore, and efforts to resolve the issue over the past decade have been unsuccessful. The second case involves a Rs 10 crore fixed deposit at the former State Bank of Mysore, now part of SBI. The Karnataka State Pollution Control Board’s deposit was misused to settle loans of a private company with forged documents. Efforts to recover the amount have been similarly unsuccessful.

A senior government official told Moneycontrol: "We have been pressing the banks on the missing funds, but they claim the matter is sub judice. The State Public Accounts Committee decided to stop doing business with these banks, so we issued a circular to withdraw the deposits. The banks have approached the finance department, requesting time to resolve the issue quickly and avoid escalation. The government will look into it."

The diktat come amid intense political tussle between the BJP-led Opposition and the Congress-ruled state government of Karnataka. State-run Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd is at the centre of the alleged fund transfer scam. Corporation's accounts superintendent Chandrashekhar P’s May 26 suicide note exposed the alleged scam.