According to The Economic Times, the Karnataka government has directed all ministries, public sector bodies, universities and subordinate organizations to stop all transactions with the State Bank of India (SBI) and the Punjab National Bank (PNB).
The finance ministry has issued a circular to all department heads pointing out that the Karnataka Industrial Areas Development Board (KIADB) could not recover a deposit from the Punjab National Bank (PNB), while the Pollution Control Board had a similar problem with the State Bank of India. Despite several rounds of negotiations with the two state-run banks, the government’s efforts were unsuccessful, the circular said.
“Accounts of state ministries, public sector undertakings, corporations, local bodies, universities and other institutions with State Bank of India and Punjab National Bank shall be closed immediately. Moreover, no further deposits or investments shall be made in these banks,” the order said.
Why did the Karnataka government take this decision?
The Finance Ministry, headed by Chief Minister Siddaramaiah, has directed all department heads to immediately close accounts and fixed deposits in the two banks and report to the government whether the regulations have been complied with.
The circular also referred to the concerns raised by the audit authorities and Parliament’s audit committees on this matter.
This action is in response to reports of two fraudulent transactions. The first case concerns a ₹25 crore fixed deposit of the Karnataka Industrial Area Development Board at the Rajajinagar branch of PNB on 14 September 2011. Although the maturity of the deposit has expired, PNB has allegedly only ₹13 crore, and attempts to solve the problem over the last decade have failed.
The second case concerns a ₹10 crore fixed deposit in the erstwhile State Bank of Mysore, now part of SBI. The funds, which were deposited by the Karnataka State Pollution Control Board, were misused to repay loans to a private company using forged documents. Efforts to recover the funds have also failed.
