Karnataka Orders Departments To Immediately Halt Transactions With SBI, PNB Citing Irregularities

The Karnataka state government on Wednesday ordered all departments to close their accounts with the State Bank of India and Punjab National Bank, citing alleged financial irregularities.

All state government departments, public undertakings, corporations, boards, local bodies, universities, and other institutions must withdraw their deposits and investments from these banks immediately, according to the order issued by the statement of the of the government's finance department, adding that no new deposits or investments are to be made in these banks.

The directive instructed all departments to finalise the closure of their accounts with both banks and transfer the funds by 20 September, with the deputy secretary to be notified upon completion.

This decision by the Siddaramaiah-led government follows allegations of financial irregularities and unauthorised transactions involving state funds. The government said that previous warnings and communications about the allegations were ignored, leading to the decision to close the accounts.

The order highlighted that unauthorised transactions involving Rs 187 crore of the corporation’s funds were discovered, with Rs 88.62 crore being transferred into accounts held by IT companies and a cooperative bank in Hyderabad.

The finance department cited an instance of purported financial malfeasance related to the Karnataka Industrial Area Development Board's funds, alleging that bank officials colluded to misappropriate funds from PNB accounts. The government said that the case remains unresolved in the courts, with a 'significant' amount yet to be recovered.

In a separate incident, the Karnataka State Pollution Control Board had placed funds with SBI, which were purportedly misused to settle a private company's loan through fraudulent documentation in 2013, the directive said, adding that this matter also remains before the courts for resolution.

The move seems to be a hasty decision by the state government as the matters are still pending with the courts, according to Apas Advisory's Managing Partner, Ashvin Parekh.

"The allegations of corruption and irregularities are matters that the court will examine," Parekh told NDTV Profit in a televised interview. "There may be several other factors, such as a political agenda, but at the same time, both banks have a reputation for handling the accounts of both central and state governments for decades."