'We are in discussion with state govt': Punjab National Bank on Karnataka's transaction suspension order

The Punjab National Bank on Thursday issued a statement after the Karnataka government decided to cut ties with the State Bank of India and PNB and asked all state government departments, public sector units to close all accounts with these banks.

On August 15, the PNB said it is in discussion with the Government of Karnataka to resolve the issue. "As the matter is currently Sub-Judice, it will not be prudent to make any specific comment. However, the Bank is committed for amicable resolution of the matter and is in discussion with Government of Karnataka," PNB said in a statement.

On Monday, the finance department of Karnataka issued the order mandating the closure of all accounts held by state government departments, public sector units, boards, corporations, local bodies, universities, and other institutions at these banks. The circular, as communicated by Secretary P C Jaffer, outlined a deadline of September 20 for the aforementioned entities to adhere to this directive.

“In this background, it is informed through this circular that the state government’s departments, public sector units, corporations, boards, local bodies and universities and other institutions should withdraw all the deposits/investments made in all the branches of the State Bank of India and the Punjab National Bank and no deposits/investments should be made in future,” the circular read.

Based on recent reports, the decision to take action was influenced by two instances of fraudulent transactions that occurred at the banks. The first incident occurred at PNB's Rajajinagar branch, where the Karnataka Industrial Area Development Board initiated a fixed deposit of Rs 25 crore on September 14, 2011. Upon the maturity of the deposit, it came to light that PNB only disbursed Rs 13 crore, holding back the remaining amount.

Despite numerous efforts including meetings and continuous correspondence with bank officials, there was no resolution to the issue as outlined in the official communication. Additionally, it was observed that this particular case had been entangled in legal proceedings for a period of 10 years in the court.

Another case is about a fixed deposit held at the former State Bank of Mysore, which underwent a merger with the SBI in 2017. Specifically, the Karnataka State Pollution Control Board maintained a fixed deposit of Rs 10 crore at the bank's Avenue Road branch.

Allegedly, this amount was utilised to offset loans acquired by a private entity through the submission of fraudulent paperwork. Upholding efforts to reclaim the sum reportedly encountered difficulties akin to those experienced in the handling of the fixed deposit situation at PNB.

The issues mentioned in the Comptroller and Auditor General of India reports drew significant objections. The Public Accounts Committee conducted several meetings to discuss these concerns and ultimately advised that authorities cease all transactions with the banks in question, as outlined in the circular.

An SBI official quoted in news reports said the order came as a surprise, as such a decision was taken by the Karnataka government despite the matter being sub judice. He noted the amount involved in the matter is ‘small’, and the bank had faced similar instances earlier.