Govt. directs departments to close accounts in SBI, Punjab National Bank

Government orders severing ties with State Bank of India and Punjab National Bank over disputed fixed deposits.

In an unprecedented decision that threatens to cut long-standing ties with banking behemoth the State Bank of India and the Punjab National Bank, government departments, boards/corporations, universities, local bodies and public sector undertakings have been asked to sever relations with both banks.

Not only have they been asked to withdraw the deposits and close accounts immediately but they have been told not to have any relationship with the two banks in future. The move follows separate disputes with the banks over a total of ₹22 crore kept as fixed deposits, which the State government failed to get back after the term ended.

The State government is fighting separate cases in the court against the two public sector banks over the recovery of money that had been kept as FDs, one of which had been pending in court for the past ten years. The issue has also been flagged in the Comptroller and Auditor General’s report and extensively discussed in the Public Accounts Committee. The direction from the Finance Secretary (Expenditure) P.C. Jaffer, which has been approved by the Chief Minister Siddaramaiah, came on Monday.

The circular cited two instances with both banks that have resulted in the judicial process for recovery. With respect to the PNB, the government has been fighting a court battle for ten years after it failed to recover ₹12 crore that had been kept as FD despite multiple meetings and communications with bank officials.

This is connected with the Karnataka Industrial Area Development Authority keeping ₹25 crore in PNB, Rajajinagar branch, as FD in September 2011. While one FD of ₹13 crore had been encashed, another FD of ₹12 crore had not been returned to the government, citing irregularities committed by the bank officials.

The other instance cited has been with the SBI, Avenue Road branch, in which the FD of ₹10 crore opened in August 2013 had been diluted by bank officials before the completion of the term and based on forged documents, the money had been adjusted with a loan account of a private company. The case is also in court after multiple meetings and communications with the bank failed, the circular noted.

The government’s relationship with SBI further strengthened in 2017 after its merger with the 104-year-old State Bank of Mysore, with which the State government had most of its banking transactions that seamlessly moved to SBI. While the consolidated quantum of funds available in two banks is readily not available, the government is in the process of ascertaining it, a senior Finance Department official said. Earlier, the government had taken precautions in dealing with YES Bank when it was going through a crisis.