Karnataka Govt Halts Controversial Circular On SBI, PNB Transactions For 15 Days

A government circular on August 12 directed all its departments, boards, corporations, public sector units, and universities to immediately withdraw all their deposits and investments from SBI and PNB

The Karnataka government on Friday suspended its circular, which had banned all business transactions with the State Bank of India (SBI) and the Punjab National Bank (PNB), for 15 days. This move followed a review of the requests made by the two banks, as considered by Karnataka’s Chief Minister Siddaramaiah.

A government circular issued on August 12 directed all its departments, boards, corporations, public sector units, and universities to immediately withdraw all their deposits and investments from the SBI and PNB. Additionally, the circular mandated that no further business transactions be conducted with these banks.

"After considering the banks' requests, the Honorable Chief Minister has directed officials of the Finance Department to keep the circular in abeyance for 15 days," a release from the state government said.

The statement explained that suspending the previous circular "will allow the banks sufficient time to address the issues and redress the concerns of the government." It emphasised the government's commitment to transparency and accountability in all its dealings. 

“We will continue to monitor the situation and take appropriate action to protect the interests of all stakeholders,” the statement added.

The state government explained that its decision to issue the circular on August 12, instructing all departments to withdraw and restrict further deposits in the SBI and PNB, was based on observations from the Public Accounts Committee dated July 2 and August 6, as well as findings from the Comptroller and Auditor General's report. This action was a response to alleged fraud at the banks, which had led to the non-repayment of fixed deposits from the Karnataka State Pollution Control Board (KSPCB) and the Karnataka Industrial Area Development Board (KIADB).

The government noted that these issues remained unresolved despite extensive correspondence and meetings since 2012-13. On August 16, both banks submitted written appeals requesting a 15-day extension to address the concerns. That same day, senior bank officials met with high-ranking Finance Department officials to reiterate their request.

The previous circular indicated that PNB and SBI had blocked Rs 12 crore of KIADB funds and Rs 10 crore of KSPCB funds, respectively, due to issues related to scams within the banks.