The Karnataka High Court has directed Canara Bank to limit its recovery from a retired bank employee’s pension to no more than 50% of the total amount. This ruling was issued to protect the financial stability of pensioners.
The court stressed that pensions are meant to serve as financial security for retired employees. They should not be fully deducted for repaying loans unless there are serious issues such as fraud, forgery, or misconduct.
Justice S.G. Pandit, who delivered the verdict, acknowledged that banks have the legal right to recover unpaid loans. However, he emphasized that they must follow certain rules designed to safeguard pensioners. Taking away an entire pension could leave retirees in financial distress and violate Article 21 of the Indian Constitution, which guarantees the right to life and personal liberty.
What is the case all about?
This case was brought to court by Murugan O K, a 70-year-old retired Canara Bank employee from Thrissur, Kerala. Murugan had retired on November 30, 2014, and had been regularly paying his loan installments (EMIs) from part of his pension.
However, in July 2024, Canara Bank started deducting his entire pension to settle his remaining loan dues. This left Murugan with no money to cover his basic needs, so he sought help from the court.
Murugan also asked the court to stop the bank from adding penal interest on an educational loan for which he had stood as a co-guarantor with his daughter.
Canara Bank’s Argument
Canara Bank argued that Murugan still owed Rs 8.5 lakh on the loan and claimed it was within its rights to recover the outstanding amount.
Court’s Final Decision
After reviewing the case, the court ruled that the bank could only deduct up to 50% of Murugan’s pension for loan recovery. The judge also advised the bank to explore other legal ways to recover the loan, such as enforcing any collateral (assets) that had been pledged when the loan was taken.
Justice Pandit pointed out that even for employees who are still working, the maximum loan recovery is usually capped at 50% of their monthly salary. He explained that the same rule should apply to retirees to ensure that they can maintain their basic living expenses.
This judgment is a reminder that while banks can recover unpaid loans, they must do so in a way that does not jeopardize the financial well-being of retirees.
