Delhi High Court rejects SBI review plea on using retiree's gratuity to close loans

The Delhi High Court on 16 October 2026 dismissed a review petition filed by State Bank of India (SBI) against its order of 23 July 2026. That order had held that the bank could not use a retired officer's provident fund (PF) and gratuity to close his loan accounts before their fixed tenures ended. The officer had taken a housing loan of Rs 20 lakh, an education loan of Rs 7.5 lakh and a vehicle loan of Rs 2.5 lakh during his service.

What Happened

According to the judgment, the officer retired on 30 November 2017. His PF was credited to his personal overdraft account and his gratuity to his pension account. The bank then used these benefits to close the education loan account on 15 February 2018, adjusting Rs 9,68,027 from the overdraft account, and the housing and vehicle loan accounts on 23 February 2018. The bank had classified the education loan as a non-performing asset (NPA), meaning repayments had stopped.

A single judge held the appropriation unsustainable on 5 January 2023, and a division bench dismissed SBI's appeal in July 2026. In the review, SBI argued that the loan agreements and a pension regulation allowed it to recover dues from retirement benefits. The court held that these points had already been considered and a review cannot reargue a case. It recorded that the loan terms did not allow premature closure merely because the borrower reached retirement age, that pension and gratuity cannot be withheld or appropriated except under the authority of law, and that NPA classification did not by itself authorise early adjustment from terminal benefits.

What It Means

The ruling concerns how a bank recovers a loan, not whether the money is owed. The court clarified that SBI's right to recover the outstanding dues subsists and that it remains free to pursue remedies available in law. Per the judgment, the bank could not close fixed-tenure loans early by taking retirement benefits already credited to the borrower's accounts.

For borrowers whose loans run beyond retirement, the judgment shows that a lien on one balance does not automatically let a bank take money from other accounts. Bank customers with a complaint can approach RBI at https://cms.rbi.org.in.

Source: High Court judgment