Karnataka govt asks its departments to close accounts in SBI, PNB over funds misuse charges

The Karnataka government, led by Chief Minister Siddaramaiah, issued an order on August 14 instructing all state departments to close their accounts in the State Bank of India (SBI) and Punjab National Bank (PNB) due to alleged misappropriation of funds.

The order issued by the state Finance Secretary mandated the closure of accounts and recovery of deposits with immediate effect. Furthermore, no additional deposits or investments will be permitted in these banks as per the government's decision.

As per news reports, the decision to take action was prompted by two instances of fraudulent transactions documented at the banks. The initial incident pertained to PNB's Rajajinagar branch, wherein the Karnataka Industrial Area Development Board initiated a fixed deposit amounting to Rs 25 crore on September 14, 2011. Upon the maturity of the deposit, it was reported that PNB only disbursed Rs 13 crore, withholding the remaining sum.

Despite considerable efforts including meetings and ongoing correspondence with bank authorities, there was no resolution to the matter as highlighted in the official communication. Furthermore, it was noted that this specific case had been undergoing legal proceedings for a period of 10 years in court.

"Accounts held in 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. Additionally, no further deposits or investments are to be made in these banks," the order said.

A senior government official told Moneycontrol that on resolving the issue, the banks claimed the matter is sub judice. "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 stop doing business with these banks. The banks have approached the finance department, requesting time to resolve the issue quickly and avoid escalation. The government will look into it."

The directive was issued against the backdrop of a heated political confrontation between the Opposition led by the BJP and the state government ruled by the Congress in Karnataka. The Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd is embroiled in an alleged scandal involving the transfer of funds. The disclosure of the purported scam came to light after the corporation's accounts superintendent, Chandrashekhar P, died by suicide on May 26 and left a note behind.

The note claimed that Rs 187 crore belonging to the corporation was transferred without authorisation and Rs 88.62 crore out of the total amount was then moved to other accounts, including those belonging to IT companies and a cooperative bank based in Hyderabad.