Karnataka reverts boycott circular against SBI, PNB after banks repay ₹23 crore with interest

The Karnataka government has revoked a controversial directive asking various departments to cease operations with two of India's largest public sector banks, Moneycontrol reported.

This decision comes after the State Bank of India (SBI) and Punjab National Bank (PNB) returned a total of ₹22.67 crore, which had been the subject of alleged embezzlement, along with interest for one year, as per the report.

Livemint could not independently verify this news development.

On August 12, the state's finance department issued a circular calling for all government entities, including departments, boards, corporations, universities, local bodies, and public sector undertakings, to cut ties with SBI and PNB. The government cited the banks' perceived lack of cooperation in recovering misappropriated funds as the reason for this drastic measure. However, the circular was suspended just four days later, as per the report by Moneycontrol.

A government official, speaking on condition of anonymity, stated, “SBI returned ₹9.67 crore, and PNB returned ₹13 crore, both with one year's interest, pending the outcome of court cases,” as quoted by Moneycontrol.

The original circular was prompted by two separate incidents of alleged financial misconduct. The first case involved a ₹25 crore fixed deposit made by the Karnataka Industrial Area Development Board with PNB's Rajajinagar branch in September 2011. Upon maturity, PNB reportedly released only ₹13 crore, with the remaining amount unresolved for over a decade.

The second case centred around a ₹10 crore fixed deposit by the Karnataka State Pollution Control Board with the former State Bank of Mysore, now part of SBI. Using forged documents, this deposit was allegedly misused to settle a private company's loans.

With the banks returning the disputed funds plus interest, the state government's decision to withdraw the circular marks a resolution to this financial standoff.