The Karnataka government recently issued a directive suspending all transactions with the State Bank of India (SBI) and Punjab National Bank (PNB) amid serious allegations of misuse of government funds.
The order, approved by chief minister Siddaramaiah, was issued by the Karnataka finance department. It directed all the departments, boards, corporations, public sector units, and universities to immediately close their accounts with these banks and recover any deposits held. No further deposits or investments will be permitted in these banks due to allegations of fund misappropriation, according to the order.
Why did Karnataka take this step?
The decision stems from alleged funds misappropriation involving the Karnataka Industrial Area Development Board (KIADB) and the Karnataka State Pollution Control Board (KSPCB).
The Karnataka government claimed that a Rs 10 crore fixed deposit made by the Karnataka State Pollution Control Board with the State Bank of India in 2013 was misused to settle loans of a private company using forged documents.
Also, the Karnataka Industrial Area Development Board's Rs 25 crore fixed deposit with Punjab National Bank in 2011 is alleged to have been mishandled, with only Rs 13 crore recovered. The remaining amount remained unaccounted for.
According to the Karnataka government, the case has been pending in courts and several crores have still not been refunded.
The circular, signed by PC Jaffer, Secretary (Budget & Resources) of the Finance Department, outlined a deadline of September 20, 2024, for all departments to comply with the directive. The circular said the meeting with the bank officials yielded no result.
Already, the state is witnessing a slugfest between the Congress-ruled Karnataka government and the opposition BJP over the alleged money transfer case involving the state-run Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd.
What did SBI and PNB say?
Both SBI and PNB have issued responses, citing the ongoing legal proceedings. SBI, in its statement on August 15, said it is in dialogue with the Karnataka government to resolve the issue amicably.
"As the matter is currently subjudice, we are unable to provide any specific comments at this time. However, we remain in ongoing discussions with the Government of Karnataka to resolve the issue amicably," the SBI statement said.
PNB echoed the same sentiment. “The bank is committed to an amicable resolution of the matter and is in discussions with the Government of Karnataka,” it said.
Impact of Karnataka’s decision
According to reports, the directive is likely to impact many state institutions, requiring them to withdraw and reinvest their funds elsewhere by the September deadline.
According to CNBCTV18, this move could have broader implications for the relationship between public sector banks and state governments, especially in terms of accountability and trust.
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