Karnataka High Court restricts bank from deducting full pension of retired employee for loan recovery

Bengaluru: The Karnataka High Court has directed Canara Bank not to deduct more than 50 percent of a retired bank employee's pension to recover his outstanding loan dues.

The court emphasised that pension serves as financial security for retirees and should not be entirely diverted toward debt repayment, except in cases of fraud, forgery, or misconduct.

Justice S G Pandit, who delivered the verdict, underscored that while banks have the legal right to recover dues, they must adhere to regulations that safeguard pensioners' livelihoods.

He pointed out that a pensioner's financial stability is essential, and forcing them to forfeit their entire pension for loan repayment could infringe upon Article 21 of the Indian Constitution, which guarantees the right to life and personal liberty.

The case was brought before the court by 70-year-old Murugan O K, a retired Canara Bank employee now residing in Thrissur, Kerala.

Murugan had retired on November 30, 2014, and had been consistently paying his loan EMIs from a portion of his pension. However, starting in July 2024, Canara Bank began deducting his entire pension to settle the dues, prompting him to seek legal intervention.

He also requested the court to prevent the bank from imposing penal interest on an educational loan for which he was a co-obligant with his daughter.

Canara Bank contended that Murugan owed Rs 8.5 lakh and insisted it was within its rights to recover the outstanding amount.

However, the court ruled that the bank could only deduct up to 50 per cent of his pension for loan recovery and suggested that it explore other legally permissible avenues, such as enforcing any collateral provided against the loan.

Justice Pandit highlighted that even for employees still in service, loan recoveries typically do not exceed 50 per cent of their take-home salary.

He maintained that the same principle should be applied to pensioners to ensure their financial well-being.