Bengaluru: Karnataka government Thursday said it is actively engaging with public sector lenders, State Bank of India (SBI) and Punjab National Bank (PNB), to try and resolve long-pending disputes over public money lost to fraud. This came within 24 hours of the state ordering closure of its accounts in the two banks after it accused them of “taking a very aloof stand” on returning around Rs 30 crore lost to fraud over a decade ago.
Government officials said that they were “forced” to take the extreme step, but are looking to resolve the issue so that the decision “does not cause a disturbance in the market”.
Senior officials told ThePrint there was no dearth of options in terms of other banks, but the government would prioritise resolving issues with SBI and PNB since any withdrawal may have a major impact on the market and already sluggish investment climate.
There is no centralised database on the total exposure to each banking partner of the various departments, officials said, as investments and deposits are spread across multiple public and private sector lenders.
SBI holds accounts of various state government departments, corporations and public universities, among others, with transactions amounting to an estimated Rs 6,000-7,000 crore. In comparison, the exposure with PNB is low.
“We have been trying for a solution with the banks who have taken a stand, keeping in mind their interest as they are also victims of fraud. The government, too, has not received the money back, but it has gone out of the bank,” said one senior government official, requesting anonymity.
“It has to be decided as to who is responsible. The banks are saying they cannot give back the money… there is a process by which responsibility has to be fixed,” the official added.
SBI in a statement issued Thursday, said, “As the matter is currently subjudice, we are unable to provide any specific comments at this time. However, we remain in ongoing discussions with the Government of Karnataka to resolve the issue amicably.”
The Siddaramaiah-led Karnataka government hardened its stance after irregularities and alleged fraudulent diversion of funds from the state-run Maharshi Valmiki Scheduled Tribes Development Corporation by Union Bank of India officials to other bank accounts came to light. The Opposition in the state — Bharatiya Janata Party (BJP) and its ally, Janata Dal (Secular) — has accused the chief minister of corruption in connection with the matter.
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Banking guidelines for govt depts
P.C. Jaffer, Karnataka’s budget and resources secretary, issued an order on 12 August, directing all state government departments, public sector undertakings, corporations, boards, local bodies, universities and other institutions to “withdraw all the deposits/investments made in all the branches of the State Bank of India and the Punjab National Bank and no deposits/investments should be made in future”.
According to the circular, PNB previously refused to redeem Rs 12 crore deposited by the Karnataka Industrial Area Development Board (KIADB), following a scam allegedly involving employees of the bank. Similarly, Rs 10 crore deposited by the Karnataka State Pollution Control Board (KSPCB) were also not returned, owing to another alleged fraud.
The official quoted earlier said the issue has been raised frequently by the state’s public accounts committee (PAC), but the two banks had “taken a dry stand”, often citing legal entanglements to deny returning the money to the government.
“We have had investment guidelines for quite a few years. Earlier, it used to be at the discretion of the officer heading the department… wherever they wanted to, they deposited funds in that bank. This also leads to certain arbitrariness, and now the government has issued guidelines, which mandate calling for tenders. The bank quoting the highest interest rate will be given the account,” Jaffer told ThePrint.
Other lenders are hoping to bag government accounts currently held by SBI and PNB as officials are hopeful that all pending issues will be resolved amicably.
As of now, the option to open an account is available to departments associated with a government scheme which necessitates access to a bank account. This can include receiving money allocated under budgetary outlays, disbursal of money to beneficiaries, collection of money or other financial transactions.
Jaffer pointed out that funds for most central schemes are now being moved from institutional lenders to the Reserve Bank of India (RBI).
At the same time, the senior government official quoted above told ThePrint, “The bills will be submitted to the treasury, something like a Treasury Nodal Account. Last year, about 3 schemes came under this and this year another 20-21 will be added.”
This, the official said, would reduce the exposure of various governments and its departments to banks. “Money will come and go and there will be no interest income. Right now, about 25 percent of the total allocation is released in quarters. Many times, the entire allocation is not spent in the same year and goes off to the next year.”
Union Bank of India ‘scam’
With the BJP planning a padayatra or foot march to highlight the Valmiki board ‘scam’, the state government is now proactively dealing with the delay in return of public funds by SBI and PNB in order not to hand the Opposition more ammunition to attack the government.
Karnataka Chief Minister Siddaramaiah acknowledged in the assembly that nearly Rs 90 crore of the Rs 187 crore outlay for the Scheduled Tribes corporation was “diverted”, attracting sharp criticism from opposition parties since he also holds the finance portfolio.
The money was allegedly transferred to over 200 bank accounts in neighbouring states, like Telangana, and small IT firms. The state government formed a special investigation team (SIT) and has since recovered at least half the money and made several arrests.
Karnataka minister B. Nagendra, who held the tribal welfare portfolio, had stepped down when the irregularities were detected. The Central Bureau of Investigation (CBI) and Enforcement Directorate (ED), among other central agencies, are also probing the case.
“The criminal case is one thing and the (diverted) money is the other,” another government official said, requesting anonymity.
The official added that the government was forced to make the announcement about closing all accounts with PNB and SBI, but hoped it would not have to go through with the order. “But, if it comes to that then it does. It’s not to catch attention, but if we cannot resolve it, then we will go through with it (order to terminate accounts).”
This is an updated version of the report
(Edited by Mannat Chugh)
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