AU Small Finance Bank said there is no indication of financial impact or fraudulent activity after the Haryana government de-empanelled it for government business, according to an exchange filing late Sunday night.
The bank said it conducted an internal review following the state government’s action. It said the accounts in question were opened after completion of know-your-customer procedures. Certain employees have been placed off duty, it said, adding that it is engaging with the Haryana government over the de-empanelment.
Haryana has reduced its deposits with the bank to Rs 538 crore from Rs 735 crore, the filing said.
The clarification followed a circular issued on Sunday by the Haryana Finance Department, which said AU Small Finance Bank and IDFC First Bank were de-empanelled for government business in the state with immediate effect until further orders. The circular said no government funds shall be parked, deposited, invested or transacted through these banks. It directed all departments and organisations to take immediate action to transfer balances and close accounts maintained with the two lenders.
The state government said it had noticed that certain banks were not adhering to the conditions under which fixed deposits were being made by departments and corporations. It said that in several cases, despite clear instructions to place funds in flexible deposits or other fixed deposit instruments offering higher rates of interest, banks retained the funds in savings accounts, resulting in lower returns and consequent financial loss to the government.
The circular also said many departments and corporations were not regularly reconciling their fixed deposit and bank accounts with the concerned banks, leading to non-detection of such irregularities in a timely manner.
The Finance Department directed all departments, corporations, boards and public sector undertakings to ensure that fixed deposits are placed strictly in accordance with approved terms and conditions, regularly verify that banks comply with prescribed deposit instructions, and undertake reconciliation of all fixed deposit and related bank accounts on a monthly basis. It also asked them to immediately take up discrepancies with the concerned banks and report serious deviations to the Finance Department.
The government further directed departments, boards and corporations to reconcile their respective bank accounts in line with its guidelines and complete the process by March 31. A compliance report, certified by the competent authority, must be submitted to the Finance Department by April 4, the circular said.
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