SBI, PNB shares in focus as Karnataka govt freezes transactions over embezzlement claims

SBI's shares have surged over 25 percent so far in 2024, while PNB's shares have climbed by 18 percent

Shares of SBI and PNB were flat at Rs 805 and Rs 113 respectively on August 16 following a major decision by the Karnataka government to suspend all transactions with these PSU lenders. The move comes in response to allegations of embezzlement involving deposited government funds. Both banks have reached out to the state government in hopes of resolving the matter amicably.

In separate statements, the lenders noted that the issue is currently 'sub-judice,' and thus, refrained from making further comments. The government has also instructed all state institutions to close their accounts with these banks and submit certified closure reports, along with details of deposits and investments, to the finance department by September 20.

The controversy dates back to a failure by SBI and PNB to return deposits to the state government. The first incident occurred in November 2012, when the Karnataka Industrial Area Development Board deposited Rs 25 crore at PNB's Rajajinagar branch. However, upon maturity, the bank returned only Rs 13 crore, claiming that the remaining Rs 12 crore had been misappropriated by bank officials.

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Similarly, in 2013, the Karnataka State Pollution Board deposited Rs 10 crore with State Bank of Mysore (now merged with SBI) at its Avenue Road branch. The bank, however, adjusted the deposit against a private company's loan using fake certificates and subsequently refused to return the funds.

This ban arrives at a time when the banking sector is grappling with a 'war for deposits,' where issues surrounding liability accretion are at the forefront of discussions. As of July 26, aggregate deposits in all scheduled commercial banks rose by 10.6 percent year-on-year, lagging behind the 13.7 percent growth in credit.

Recently, both the finance minister and the RBI governor emphasized the need for banks to bolster their deposit base to support growing credit demand and maintain stable liquidity. While the finance minister urged lenders to introduce innovative and attractive deposit schemes, the RBI governor clarified that banks have the freedom to set interest rates to keep deposits flowing.

So far this year, SBI's shares have surged over 25 percent, while PNB's shares have climbed by 18 percent. In comparison, the benchmark Nifty 50 index has risen by over 11 percent during the same period.

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