They said K Rajaram had used his position as Manager of Union Bank of India in to embezzle the funds.
He was in charge of processing the loan applications of Self Help Groups.
Police said the borrowers first get their loan followed by subsidy, which is credited in their accounts.
Rajaram did not sanction the loans but received the subsidies, which he then credited to his account, they said.
He has been booked under IPC Section 120(b) (punishment of criminal conspiracy), 409 (criminal breach of trust by public servant, or by banker, merchant or agent) and 420 (cheating and dishonestly inducing delivery of property).