Karnataka Halts Transactions With SBI, PNB Over Unresolved Fixed Deposit Issues

In a decisive move, the Karnataka government has ordered all state departments, public sector undertakings, universities, and related organizations to immediately halt financial transactions with the State Bank of India (SBI) and Punjab National Bank (PNB). This action, approved by Chief Minister Siddaramaiah, follows serious concerns over alleged financial irregularities involving these banks.

The directive was issued in response to unresolved issues related to the recovery of substantial fixed deposits by the Karnataka Industrial Areas Development Board (KIADB) and the Karnataka State Pollution Control Board (KSPCB). According to the Finance Department, these state entities have struggled to retrieve Rs 25 crore worth of deposits from PNB and SBI. Despite multiple attempts to resolve the matter through negotiations, the banks have failed to refund the amounts, leading the government to take strong measures.

One significant incident involved the KIADB, which had invested Rs 25 crore in a one-year fixed deposit at PNB's Rajajinagar branch in 2021. The deposit was split into two receipts-one for Rs 12 crore and another for Rs 13 crore. While the Rs 12 crore deposit was refunded after maturity, the Rs 13 crore has yet to be returned, allegedly due to fraudulent activities by bank officials.

Another case involved the Karnataka State Pollution Control Board, which invested Rs 10 crore in a fixed deposit at the former State Bank of Mysore, now part of SBI, in August 2013. Before the term matured, bank officials allegedly misused the deposit by diverting it towards a loan for a private company using forged documents. Despite continued efforts and meetings with the bank, the issue remains unresolved, and the bank has refused to refund the money.

Deadline

The government's directive mandates that all affected entities close their accounts with SBI and PNB and withdraw their funds by September 20, 2024. Departments have been instructed to submit a compliance report detailing the closure of accounts and recovery of deposits to the Finance Department by this deadline.

This unprecedented decision is expected to have a significant impact on SBI and PNB, as the withdrawal of government funds could strain their operations. However, the directive does not affect personal accounts held by state employees or pensioners, as these are considered private accounts. CS Shadakshari, President of the Karnataka State Government Employees Association, assured that the decision would not impact the salaries or pensions of state employees.

The Finance Department, under the guidance of Secretary (Budget and Resources) PC Jaffer, stressed that the government was forced to take this action after repeated attempts to resolve the issues with the banks failed. The order also stated that no further deposits or investments would be made with SBI or PNB until these matters are fully resolved.