Why illegal parking of funds in banks has Karnataka govt on its toes

Allegations that officials, particularly of the boards and corporations, illegally park funds in various banks to earn interest and that some of them misappropriate these funds in collusion with bank officials have rocked the Congress government in Karnataka.

A couple of recent incidents have shed light on this issue, prompting the state government to put on hold for 15 days all business transactions with the State Bank of India (SBI) and Punjab National Bank (PNB). The alleged misappropriation of crores of rupees has brought the management of these funds under the scanner.

A senior official in the Finance Department told The Federal that investigations are underway to determine whether officials from the Karnataka Industrial Areas Development Board (KIADB) and the Karnataka State Pollution Control Board (KSPCB) were involved in illegally parking money in these banks.

CBI probe possibility looms

The possibility of a CBI probe is now a major concern for the government. As per regulations, any bank fraud exceeding Rs 1 crore in nationalised banks automatically leads to a CBI investigation. This has raised the government's anxiety, as the CBI probe could potentially implicate government officials, leading to consequences that might escalate beyond their control, according to a senior official.

Adding to the government's woes is the ongoing Valmiki Corporation scam, in which approximately Rs 97 crore were fraudulently transferred from its accounts with Union Bank of India. In the PNB case involving the Karnataka Industrial Areas Development Board's (KIADB) Rs 12 crore FD and SBI case involving alleged swindling of Rs 10 crore of the KSPCB, there are serious concerns about where the swindled money has gone. This has raised suspicion that another scam, similar to the Valmiki Corporation case, might have taken place in KIADB and KSPCB.

These developments have prompted the government to take swift action, as they aim to mitigate further damage. Sources within the government indicate that these concerns were critical in the decision to put on hold all business transactions with with SBI and PNB and to initiate thorough internal investigations.

How funds were embezzled

One of the most notable cases currently under scrutiny is that of the KIADB, which invested Rs 25 crore in a fixed deposit at PNB's Rajajinagar branch on September 14, 2021. The bank issued two fixed deposit receipts – one for Rs 12 crore from its Salem branch and another for Rs 13 crore. However, only the Rs 13 crore deposit was refunded after maturity, while the Rs 12 crore deposit remained unaccounted for due to alleged fraud by bank officials.

Similarly, the Karnataka State Pollution Control Board's Rs 10 crore deposit in the State Bank of Mysore (now part of SBI) was allegedly adjusted against a loan to a private company using forged documents. This case, like many others, has been in the courts for several years, with no resolution in sight.

The state government’s decision to put on hold all transactions with SBI and PNB marks a significant step towards curbing financial misconduct and ensuring that public funds are used for their intended purposes. By taking strong action against the unauthorised parking of funds, the government aims to restore transparency and accountability in its financial management practices. As the Finance Department pushes for compliance with these new directives, the focus will remain on holding those responsible for these financial irregularities accountable and preventing such practices in the future, according to a department official.

Financial misconduct

This latest crackdown is not an isolated incident. In 2015, the Karnataka Panchayat Raj department unearthed a massive scandal involving the illegal parking of crores of rupees in various banks.

The then minister for rural development and panchayat raj, HK Patil, revealed the extent of financial indiscipline within his department. Investigations revealed that unaccounted government funds amounting to Rs 134 crore had been illegally parked in an account in Andhra Bank by a senior official, Ramakrishna, who was subsequently suspended. The case was handed over to the Lokayukta for further probe.

Further inquiries unearthed two more unauthorised accounts – one in Syndicate Bank with Rs 66 crore and another in Corporation Bank holding Rs 31 crore, taking the total to Rs 97 crore.

Startling revelations

A similar pattern of unauthorised fund parking has emerged now. A senior official from the Finance Department revealed that cases involving KIADB and KSPCB are currently under investigation. These cases involve significant sums of money being illegally deposited in fixed deposit accounts in banks, allegedly for personal gain by the officials involved.

A particularly concerning case involves the PNB branch in Salem, Tamil Nadu, where a fixed deposit receipt was issued for funds that were supposed to be managed within Karnataka. This has raised serious questions about why funds were placed in a bank branch outside the state when there are numerous nationalised banks available within Karnataka.

An internal inquiry has been ordered to investigate the unauthorised parking of government funds. The Finance Department typically disburses funds to various boards, corporations, and subsidiary departments for projects approved in the state budget. However, it has come to light that instead of utilising these funds for essential developmental projects, some boards and corporations, universities, and other institutions have been parking money in banks to earn interest, thereby neglecting their primary objective.

Govt’s stern response

Reacting swiftly, the government has issued a circular mandating the immediate withdrawal of all government deposits from SBI and PNB and prohibiting any future deposits in these banks. Dr PC Jaffer, Secretary of the Finance Department (Expenditure and Resources), issued the circular with a deadline of September 20, 2024, for all departments to submit detailed reports on the withdrawal of deposits and the closure of accounts.

CM's warning to officials

In a recent meeting of the Finance Department, Chief Minister Siddaramaiah reportedly took officials to task over the illegal parking of funds in various banks, warning of strict action against officers found colluding with bank officials in these misappropriations.

The department has also been asked to prepare a comprehensive list of cases where funds from various boards, corporations, and other institutions under different departments have been parked in banks as fixed deposits or through other means.