The Karnataka government has withdrawn its boycott of the State Bank of India (SBI) and Punjab National Bank (PNB) after the lenders repaid Rs 22.67 crore, which had been the subject of alleged embezzlement, along with a year’s interest.

While the SBI has returned Rs 9.67 crore, PNB has paid back Rs 13 crore, both with one year’s interest, pending the outcome of court cases.

On 12 August, the state's finance department issued a circular directing all government entities, including departments, boards, corporations, universities, local bodies, and public sector undertakings, to close their accounts at 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 put on hold on the request of banks to allow them sufficient time to address the issues and redress the concerns of the government.

The Karnataka Industrial Area Development Board had deposited Rs 25 crore in PNB's Rajajinagar branch in September 2011. Upon maturity, PNB released only Rs 13 crore, citing fraud by bank officials.

The second case centred around a Rs 10 crore fixed deposit by the Karnataka State Pollution Control Board with the former State Bank of Mysore (merged with SBI in 2017). Using forged documents, this deposit was allegedly misused to settle a private company's loans.