Karnataka govt retracts order against SBI, PNB after Rs 22.67 cr repayment

In August, the Karnataka government issued a directive to all departments, boards, corporations, universities, local authorities, and PSUs to discontinue ties with the two banks

The Karnataka government has decided to retract the circular that instructed its departments to cease business dealings with the State Bank of India (SBI) and Punjab National Bank (PNB), according to a report by MoneyControl. This decision follows the repayment of Rs 22.67 crore in "embezzled" funds by both state-owned banks, along with a year's interest.

Previously, on August 12, Karnataka's finance department had issued a directive to all departments, boards, corporations, universities, local authorities, and public sector undertakings (PSUs) to discontinue ties with the two banks. The government had accused the banks of not cooperating in the recovery of the embezzled Rs 22 crore. However, four days later, the circular was put on hold.

An official told MoneyControl, "SBI repaid Rs 9.67 crore and PNB returned Rs 13 crore, both with a year's interest, pending the outcome of legal proceedings."

Why did Karnataka govt issue the circular against PNB, SBI?

The circular arose from two cases of fraudulent transactions. The first case involved a Rs 25 crore fixed deposit made by the Karnataka Industrial Area Development Board at PNB’s Rajajinagar branch on September 14, 2011. Despite the deposit term having expired, PNB reportedly released only Rs 13 crore, with no resolution in the intervening decade.

The second case pertains to a Rs 10 crore fixed deposit by the Karnataka State Pollution Control Board with the former State Bank of Mysore, now merged with SBI. This amount was allegedly misappropriated to settle loans for a private company using forged documents.

In light of these issues, the circular (issued in August) stated: "It is informed through this notice that the state government’s departments, public sector units, corporations, boards, local authorities, universities, and other institutions should withdraw all deposits/investments from all branches of SBI and PNB, and no future deposits/investments should be made."

Despite extensive correspondence and meetings, these matters had remained unresolved since 2012-13, the Karnataka government notification further noted.