PSU banks SBI, PNB in talks with Karnataka government for ‘amicable resolution' of ban issue

Hit by the surprising decision by the Karnataka government to stop all transactions with them, State Bank of India and Punjab National Bank on Thursday said they are engaged with the state for an "amicable resolution" on the matter.

In the first official comments after the Karnataka government decision, the state-run lenders issued separate statements, saying the matter at the root of the problem is subjudice.

"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 SBI statement said.

SBI's peer Punjab National Bank also had a similar statement and pointed out that it will not be prudent to offer a specific comment on the matter.

"'The Bank is committed for an amicable resolution of the matter and is in discussion with Government of Karnataka," the PNB statement said.

The Karnataka government ordered all its departments, boards, corporations, public sector units and universities to withdraw all their deposits and investments in the State Bank of India and the Punjab National Bank and stop any business with these institutions on August 12. The order was reported on August 14.

The order came after the denial to redeem Rs 12 crore deposited by the Karnataka Industrial Area Development Board (KIADB) following a scam involving bank employees.

A state government said the meeting with the bank officials did not yield any result and the matter is now sub judice.

Similarly, Rs 10 crore deposited by the Karnataka State Pollution Control Board (KSPCB) was not returned by the bank owing to a scam by the bank officials, the circular said.

The government also directed the government institutions to close their accounts in these two banks and submit the certified closure report and send details of deposits and investment reports in the prescribed format to the finance department by September 20, 2024.

The ban by one of the most prosperous states in the country comes at a time when the banking system is reeling under a "war for deposits" where challenges on liability accretion dominate all discussions.

A senior banking source on Wednesday said that the relationship is as important for the state as well, for it has borrowings from the lenders.