The order has been paused for 15 days.
The Karnataka government has paused its order suspending all transactions with the Central government-run State Bank of India (SBI) and Punjab National Bank (PNB) just three days after it was issued, stating that the banks have sought some time to resolve the issues. The order has been paused for 15 days.
On Wednesday, the Karnataka government had directed all state departments to close their accounts with these banks and recover their deposits immediately.
"Accounts held in the State Bank of India and Punjab National Bank by state government departments, public enterprises, corporations, local bodies, universities, and other institutions must be terminated forthwith. Additionally, no further deposits or investments are to be made in these banks," the order had said.
The state's finance department had referred to an alleged fraud involving funds of the Karnataka Industrial Area Development Board. It has been alleged that money had been siphoned off with the involvement of bank officials from accounts in the Punjab National Bank. The government said the case has been pending in courts and several crores have still not been refunded.
Similarly, the Karnataka State Pollution Control Board had deposited money with SBI bank, which was allegedly adjusted along with a loan for a private company using forged documents in 2013. This case is also pending in court.
Issuing a statement on Friday, the government said its earlier directive had been paused because of requests made by both banks.
"This (Wednesday's) action was taken in response to the alleged fraud in the bank branches, which resulted in the non-repayment of fixed deposits made by the Karnataka State Pollution Control Board (KSPCB) and the Karnataka Industrial Area Development Board (KIADB). Despite prolonged correspondence and meetings, these issues remained unresolved since 2012-13," the statement said.
"On August 16, 2024, both banks submitted written representations to the government, requesting a 15-day period to resolve the matter. The same day, senior bank officials met with higher officials of the Finance Department and reiterated their request. After considering the banks' requests, the Honourable Chief Minister has directed officials of the Finance Department to keep the circular in abeyance for 15 days. This will allow the banks sufficient time to address the issues and redress the concerns of the government," it said.
Money Transfer 'Scam'
The order comes against the backdrop of a political slugfest between the Congress-ruled Karnataka government and the opposition BJP over the alleged money transfer scam involving the state-run Karnataka Maharshi Valmiki Scheduled Tribes Development Corporation Ltd. The alleged scam had been revealed after the corporation's accounts superintendent, Chandrashekhar P, died by suicide on May 26 and left a note behind.
The note claimed that Rs 187 crore belonging to the corporation was transferred without authorisation and Rs 88.62 crore out of the total amount was then moved to other accounts, including those belonging to IT companies as well as a cooperative bank based in Hyderabad.