Karnataka govt cut ties with SBI, PNB over financial frauds

Bengaluru: The Karnataka government has decided to sever all its ties with India’s largest public sector lender State Bank of India (SBI) and the Punjab National Bank (PNB) over financial frauds that led to embezzlement of public money.

In a circular, the Finance Department has asked all departments, public enterprises, corporations, boards, local bodies and universities to withdraw all deposits or investments from the two banks. Also, they have been asked to close all their accounts in the two banks.

“Going forward, no deposits or investments should be made in these two banks,” Finance Secretary (Budget & Resources) PC Jaffer stated in the circular. He has sought a compliance report before September 20.

According to the circular, SBI and PNB did not cooperate with the government in recovering Rs 22 crore money that was embezzled.

The cases involve deposits made by two government entities - the Karnataka Industrial Areas Development Board (KIADB) and the Karnataka State Pollution Control Board (KSPCB).

In September 2011, the KIADB opened a one-year fixed deposit of Rs 25 crore at the Rajajinagar branch of PNB. For this, the bank issued two receipts from its Salem branch - Rs 12 crore and Rs 13 crore, respectively. While Rs 13 crore was encashed, Rs 12 crore was not returned due to an alleged fraud involving bank officials. Letters to and meetings with bank officials did not yield results, the circular stated. The matter is pending before court.

In another case, the KSPCB opened a fixed deposit of Rs 10 crore at the Avenue Road (Bengaluru) branch of the State Bank of Mysore (now SBI) in August 2013. Before maturity, bank officials apportioned the amount towards a private company’s loan on the basis of fake documents. In this case too, the bank refused to return the money and the matter is sub-judice.

Meanwhile, audit objections were raised by the Comptroller & Auditor General (CAG) and the Public Accounts Committee (PAC). In fact, the PAC recommended last month that the government should end ties with the two banks.