Karnataka: SBI, PNB In Talks With Siddaramaiah Govt For 'Amicable Resolution' To Transaction Ban

The two state-run banks, SBI and PNB, made their first public statements following the Karnataka government's directive emphasising that the underlying issue is currently under judicial review.

This ban from Karnataka, one of India's wealthiest states, comes at a critical time for the banking sector, which is already grappling with intense competition for deposits. 

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In response to the unexpected decision by the Karnataka government to halt all financial transactions with them, State Bank of India (SBI) and Punjab National Bank (PNB) announced on Thursday that they are working closely with the state government to reach an "amicable resolution" to the issue.

The two state-run banks made their first public statements following the Karnataka government's directive emphasising that the underlying issue is currently under judicial review.

"As the matter is currently subjudice, we are unable to provide any specific comments at this time. However, we remain in ongoing discussions with the Government of Karnataka to resolve the issue amicably," the SBI statement said, as reported by PTI.

Similarly, PNB echoed this sentiment, stating, "The Bank is committed for an amicable resolution of the matter and is in discussions with the Government of Karnataka."

The controversy began on August 12, when the Karnataka government issued an order instructing all its departments, public sector units, boards, corporations, and universities to withdraw their deposits and cease business with SBI and PNB. The order, which was made public on August 14, was in response to the banks' refusal to redeem Rs 12 crore deposited by the Karnataka Industrial Area Development Board (KIADB), citing a scam involving bank employees, according to the report.

The government's directive also mentioned a similar incident involving Rs 10 crore deposited by the Karnataka State Pollution Control Board (KSPCB), which was not returned by the bank due to another alleged scam.

In addition to halting transactions, the government has instructed its institutions to close their accounts with these banks and submit certified closure reports, along with details of their deposits and investments, to the finance department by September 20, 2024.

This ban from Karnataka, one of India's wealthiest states, comes at a critical time for the banking sector, which is already grappling with intense competition for deposits.