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Karnataka Government’s Directive to Close Accounts with SBI and PNB
Context:
The Karnataka Finance Department issued a circular highlighting that KIADB couldn’t recover a deposit from PNB, and the Pollution Control Board faced a similar issue with SBI.
Reason for the Directive:
- Alleged Fund Misappropriation: On August 14, 2023, the Karnataka government directed all state departments, public sector units, and organisations to close accounts with State Bank of India (SBI) and Punjab National Bank (PNB) over alleged fund misappropriation.
- Fraudulent Transactions: The decision was triggered by two significant instances of fraudulent transactions involving the Karnataka Industrial Area Development Board (KIADB) and the Karnataka State Pollution Control Board (KSPCB).
Key Incidents Leading to the Decision:
- KIADB and PNB Incident:
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- In 2011, KIADB deposited ₹25 crore in PNB’s Rajajinagar branch.
- Upon maturity, PNB allegedly returned only ₹13 crore, and attempts to recover the remaining ₹12 crore have failed despite a decade of negotiations.
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- KSPCB and SBI Incident:
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- In 2013, KSPCB made a ₹10 crore fixed deposit with the former State Bank of Mysore (now SBI).
- The funds were reportedly misused to settle loans of a private company using forged documents, with recovery efforts proving unsuccessful.
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Government Action:
- Immediate Account Closures: The Finance Department, under the supervision of Chief Minister Siddaramaiah, ordered the immediate closure of accounts and fixed deposits held by state departments and related entities with SBI and PNB.
- No Further Transactions: The directive also prohibits any new deposits or investments in these banks.
- Compliance Deadline: All departments must comply with this directive by September 20, 2024, and report their compliance to the government.
Bank Responses:
- Legal Proceedings: Both SBI and PNB stated that the matters are sub judice (under judicial consideration) and have expressed their commitment to resolving the issues amicably.
- Dialogue with Government: The banks are in ongoing discussions with the Karnataka government to find a resolution and avoid further escalation.
Broader Impact:
- State Institutions Affected: The directive impacts a wide range of state institutions, requiring them to withdraw and reinvest their funds in other banks.
- Political Context: The decision occurs amid a political tussle between the BJP-led opposition and the Congress-ruled state government, with allegations of unauthorised fund transfers at the Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd also surfacing.
Conclusion:
The Karnataka government’s decision to sever ties with SBI and PNB reflects serious concerns over financial accountability and the protection of public funds, highlighting the importance of transparent banking practices in state-run institutions.
