Karnataka Government Mandates Closure of All State Department Accounts in SBI & PNB

On Wednesday, the Karnataka government ordered all departments to close their accounts with SBI and PNB. All state departments have been instructed to close these accounts and recover deposits. No further deposits or investments will be permitted in these banks. The decision was made due to an alleged misappropriation of funds.

The state government has set a deadline of 20th September for all departments to comply, according to a circular dated 12th August from P.C. Jaffer, Secretary (Budget & Resources), Finance Department, which Chief Minister Siddaramaiah has approved.

"Accounts held with the State Bank of India and Punjab National Bank by state government departments, public enterprises, corporations, local bodies, universities, and other institutions must be terminated forthwith. Furthermore, no additional deposits or investments are to be made in these banks," the order stated.

Additionally, accounts held by state government departments, public enterprises, corporations, local bodies, universities, and other institutions with SBI and PNB must be closed immediately.

This action follows reports of two fraudulent transactions. The first involves a fixed deposit of Rs 25 crore at PNB’s Rajajinagar branch, initiated by the Karnataka Industrial Area Development Board on 14th September 2011. Despite the deposit term ending, PNB allegedly released only Rs 13 crore, and efforts to resolve the issue over the past decade have been unsuccessful. The second case involves a Rs 10 crore fixed deposit at the former State Bank of Mysore, now part of SBI. The Karnataka State Pollution Control Board’s deposit was misused to settle loans of a private company using forged documents. Efforts to recover the amount have likewise been unsuccessful.

A senior government official told Moneycontrol:

"We have been pressing the banks on the missing funds, but they claim the matter is sub judice. The State Public Accounts Committee decided to cease doing business with these banks, so we issued a circular to withdraw the deposits. The banks have approached the Finance Department, requesting time to resolve the issue swiftly and avoid escalation. The government will look into it."

The directive comes amid an intense political tussle between the BJP-led opposition and the Congress-led state government of Karnataka. The state-run Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd is at the center of the alleged fund transfer scam. The corporation's accounts superintendent, Chandrashekhar P., exposed the alleged scam in his suicide note dated 26th May.