Can Banks Deduct Full Monthly Pensions For Loan EMIs? Know What The Karnataka HC Ruled

When you need a loan, banks eagerly offer it to you. But when you miss EMI payments, should they follow up with you for repayment or simply debit your account? In a recent ruling, the Karnataka High Court stated that a bank cannot deduct a borrower's entire monthly pension to recover equated monthly installments (EMIs) of a loan.

According to the media reports, the petitioner, Murugan O. K., a retired bank employee, was a co-obligant on an education loan taken by his daughter.

He retired from Canara Bank in November 2014 and resides in Thrissur, Kerala. Until June 2024, a portion of his monthly pension was deducted for loan EMIs. However, starting in July 2024, the bank started debiting his entire pension amount.

This is when he approached the high court last year seeking a stop on his pension debits from the bank. He also sought a waiver of interest on the loan.

Recovery Should Not Be More Than 50 Per Cent Of Pension:

While hearing the case, Justice S. G. Pandit ruled that a pension is given to a person as a financial security in old age, and taking away the entire amount against a loan recovery is against the law. The judge observed, “Pension is paid to an employee to sustain himself after retirement. Normally, [loan] recovery should not exceed 50 per cent of the take-home salary, if an employee is in service. The same principle should apply in this case also", reported The Times of India. 

He referred to Article 21 of the Constitution of India and held that taking away the entire pension amount to a loan is a violation of the Constitution.

What Does Article 21 Of The Constitution Say?

Article 21 of the Constitution is about the protection of life and personal liberty. According to it, “No person shall be deprived of his life or personal liberty except according to procedure established by law”.

Recovery Of Full Pension Is Allowed In Certain Conditions:

He clarified that recovery of the full pension amount is allowed only when an employee has been found guilty of misconduct in service or is convicted of forgery or fraud. Observing no such incident the judge ordered Canara Bank to stop debiting the full pension amount from the account of the petitioner.

The judge held that recovery of loans is permitted, but the measures should be within the law. A pension is a social security for a pensioner and the family, and debiting the entire pension amount to recover a loan defeats the whole purpose of a pension and thus is not permitted.

Loan Recovery Is Permitted But Within The Law:

However, he allowed Canara Bank to recover the loan using any other measure within the law, such as seizing the asset kept as a security against the loan. He even allowed the bank to recover the interest amount along with the principal.

Notably, the bank has sanctioned an education loan of around Rs 8.5 lakh and is now in the process of recovering the loan by debiting the pension.

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