Karnataka Halts Dealings with SBI, PNB Amid Financial Controversies

The Karnataka government has ordered an immediate suspension of all financial transactions with State Bank of India (SBI) and Punjab National Bank (PNB) following serious allegations of financial misconduct. A government circular dated August 12, signed by P.C. Jaffer, Secretary of the Finance Department, directed all state departments, including public sector units, boards, corporations, local bodies, and universities, to withdraw their deposits from these banks and close their accounts by September 20.

This unprecedented move stems from two significant incidents involving these banks. The first involves PNB’s Rajajinagar branch, where the Karnataka State Industrial Board (KSIB) had a fixed deposit of ₹25 crore. However, upon maturity, PNB released only ₹13 crore, citing pending court cases as the reason for withholding the remaining funds.

The second incident concerns the former State Bank of Mysore, now merged with SBI. The Karnataka State Pollution Control Board had a fixed deposit of ₹10 crore with the bank. Before the deposit matured, the funds were allegedly adjusted against loans taken by a private company using forged documents, an action that has sparked outrage within the state government.

These incidents prompted the state to take swift action, with Chief Minister Siddaramaiah, who also serves as the Finance Minister, approving the directive. The government has made it clear that no further business should be conducted with these banks until the matters are fully resolved.

Officials from SBI expressed surprise at the state’s decision, noting that the issue is currently sub judice and that similar cases had been managed in the past without such drastic measures. Despite the controversy, the banks involved have not issued an official statement regarding the order.

This decision is likely to have significant ramifications on the banking sector in Karnataka, with the potential to affect thousands of accounts and millions in deposits. The government’s actions underscore the seriousness of the allegations and its commitment to protecting state funds from potential misuse.

As the situation unfolds, both banks are expected to respond to the allegations and work towards resolving the disputes to restore their working relationships with the Karnataka government.

This development has garnered widespread attention, given the significant role of both SBI and PNB in managing public sector finances in India. The resolution of these issues will be closely watched, as it could set a precedent for how similar cases are handled in the future.