The Karnataka government on Friday kept its circular in abeyance for 15 days, which prohibited all business transactions with the State Bank of India (SBI) and the Punjab National Bank (PNB).

The decision came after Chief Minister Siddaramaiah considered the two banks’ requests.

A government circular issued on August 12 ordered all its departments, boards, corporations, public sector units and universities to withdraw all their deposits and investments in the SBI and the PNB and stop transacting any business with these institutions.

"After considering the banks' requests, the Honorable Chief Minister has directed officials of the Finance Department to keep the circular in abeyance for 15 days," the state government said in a release.

It said that putting the previous circular on hold "will allow the banks sufficient time to address the issues and redress the concerns of the government." The government is committed to ensuring transparency and accountability in all its dealings, said the statement.

"We will continue to monitor the situation and take appropriate action to protect the interests of all stakeholders," it added.

Explaining the circumstances, the state government said that based on the observations made by the Public Accounts Committee on July 2 and August 6 and the audit findings included in the Comptroller and Auditor General's report, the government has taken a decision to issue the circular on August 12, directing all departments to withdraw their deposits and restrict further deposits in all branches of SBI and PNB.

This 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), the statement said.

Despite prolonged correspondence and meetings, these issues remained unresolved since 2012-13, the government said. It added that on August 16 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.

According to the previous circular, Rs 12 crore belonging to the KIADB and Rs 10 crore of the KSPCB were blocked by PNB and SBI respectively for many years owing to scams in these two banks.

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