Shares of Punjab National Bank (PNB) and State Bank of India (SBI) are in focus on Friday morning after the Karnataka government ordered state departments and other Institutions to close accounts with the two public sector banks (PSBs) over financial frauds.
As the matter is currently Sub-Judice, it will not be prudent to make any specific comment, said PNB in a media statement. "However, the bank is committed for amicable resolution of the matter and is in discussion with Government of Karnataka," the PSU lender said.
In a similar statement, the largest state-run Bank SBI said: "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. SBI shares are up 25 per cent in 2024 so far. PNB shares are up 16.3 per cent year-to-date.
On August 12, the Karnataka government directed all its departments, corporations, boards, universities and public sector units to withdraw their investments and deposits from PNB and SBI and cease business activities with the two banks. The order, which was reported on August 14, was issued after the Karnataka Industrial Area Development Board (KIADB) was denied the redemption of Rs 12 crore, following a scam involving bank employees.
As per PTI, a meeting with bank officials yielded no results, and the matter is now sub judice.
According to a circular, the Karnataka State Pollution Control Board (KSPCB) also faced a similar issue, with Rs 10 crore deposited in the bank not being returned due to a scam involving bank officials.
The government has directed all state institutions to close their accounts with these two banks, submit certified closure reports, and send details of their deposits and investments to the finance department in the prescribed format by September 20, 2024.
This ban by one of India's most prosperous states comes at a time when the banking system is grappling with a "war for deposits," where challenges related to liability growth dominate discussions. A senior banking source told PTI that the relationship is equally significant for the state, as it has borrowings from these lenders.