The decision to keep the circular in abeyance came after Chief Minister Siddaramaiah considered the requests of the two banks.

The Congress government in the state -- on August 12 -- issued a circular, ordering 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.

The release said that putting the circular on hold will provide sufficient time to the banks to address the issues and redress the government's concerns.

The Siddaramaiah-led government is committed to ensuring transparency and accountability in all its dealings, the statement said, adding that "We will continue to monitor the situation and take appropriate action to protect the interests of all stakeholders."

The August 12 circular was 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 Audit General's report, the government had said.

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 was cited by news agency PTI.

The government said that despite prolonged correspondence and meetings, these issues remained unresolved since 2012-13, adding that both the banks on Friday submitted their written representations to the state and requested a 15-day period to resolve the matter.

Senior bank officials on Friday itself met with higher officials of the Finance Department to reiterate their request in person.

As per 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 the scams in these two banks.