Karnataka government to close SBI, PNB accounts

Karnataka’s finance department on Wednesday directed all state government departments, public sector undertakings, boards, corporations, local bodies, universities, and other state-run institutions to close their accounts with State Bank of India (SBI) and Punjab National Bank (PNB). The directive, issued by Finance Secretary PC Jaffer, sets a deadline of September 20 for compliance.

Karnataka’s finance department on Wednesday directed all state government departments, public sector undertakings, boards, corporations, local bodies, universities, and other state-run institutions to close their accounts with State Bank of India (SBI) and Punjab National Bank (PNB). The directive, issued by Finance Secretary PC Jaffer, sets a deadline of September 20 for compliance.

The order alleged that two major incidents of financial irregularities involving these banks had led to the decision. One case involved the Karnataka Industrial Area Development Board (KIADB), which had deposited ₹25 crore in a fixed deposit at PNB’s Rajajinagar branch on September 14, 2011. (Mint)

The order alleged that two major incidents of financial irregularities involving these banks had led to the decision. One case involved the Karnataka Industrial Area Development Board (KIADB), which had deposited ₹25 crore in a fixed deposit at PNB’s Rajajinagar branch on September 14, 2011. Upon the deposit’s maturity, PNB reportedly released only ₹13 crore, leading to a decade-long legal battle.

The other case pertained to the Karnataka State Pollution Control Board (KSPCB), which had invested ₹10 crore in a fixed deposit at the erstwhile State Bank of Mysore, now merged with SBI. It was alleged that the deposited amount was fraudulently adjusted against loans taken by a private company using forged documents, and recovery attempts have been unsuccessful.

The finance department’s order stated: “The Karnataka Industrial Areas Development Board deposited ₹25 crores in a fixed deposit for a one-year term at the Punjab National Bank, Rajajinagar branch, through a cheque on 14.09.2021. In return, the bank issued two fixed deposit receipts, one for ₹12 crore from another branch of the same bank in Sankari Bank, Salem, and another for ₹13 crore. After the maturity of the term, the ₹13 crore deposit was encashed. However, due to an alleged fraud involving the bank officials in connection with the second deposit, the bank has not refunded the amount to date.”

The order further stated: “The Karnataka State Pollution Control Board had invested ₹10 crore in a fixed deposit at the then State Bank of Mysore, Avenue Road, Bangalore, in August 2013. Before the term matured, the amount related to the said deposit was adjusted by the bank officials towards a loan for a private company using fake documents. Despite correspondence and meetings with the bank regarding this fraudulent case, the bank has refused to refund the money.”

These cases have been criticised in reports by the Comptroller and Auditor General (CAG) and have been repeatedly discussed in the Public Accounts Committee (PAC). The committee has recommended that all state government departments withdraw and refrain from making further deposits in SBI and PNB branches, the report added.

“Further, offices, public enterprises, corporations, boards, local bodies, universities, and other institutions under the administrative control of your department are instructed to close all deposits and other accounts held in all branches of State Bank of India and Punjab National Bank, and to submit confirmation along with details of deposits and accounts in the attached format to the Deputy Secretary, Finance Department, Budget and Resources Section, by 20.09.2024,” the order read.

The order has added fuel to the ongoing political controversy between the Congress-ruled Karnataka government and the opposition Bharatiya Janata Party (BJP), particularly in the wake of the alleged money transfer scam involving the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd. This controversy intensified after one of the corporation’s officials allegedly died by suicide on May 26, leaving behind a note that implicated unauthorised transfers of ₹187 crore, with ₹88.62 crore allegedly moved to various accounts, including those of IT companies and a Hyderabad-based cooperative bank.

State BJP spokesperson Ashok Gowda said the state government does not have any commitment towards bringing down corruption in the state. He said: “Karnataka government’s move appears to be a reaction aimed at penalising centralised banks. Up until the late 1980s, all accounts were maintained with the State Bank of Mysore (SBM). Subsequently, a policy shift allowed accounts to be opened with other banks, which was a reasonable change.”

“However, the issue now is that departments are spreading their accounts across multiple banks. Earlier in June, the finance department had requested details of these accounts from various departments, but compliance has been lacking. This suggests a lack of genuine commitment from the Karnataka government towards addressing and reducing corruption,” he added.

In reponse, Congress spokesperson Nisam Fauzdar described the order as an effort to streamline operations. “This is a simple process of streamlining operations. However, it is important to note that the Congress does not issue administrative directives to the government. The decisions in this matter are made by the chief secretary and the principal secretary of finance, who are responsible for these calls, and they have acted accordingly,” he said.