What changed
RBI substituted Chapter III of the April 2026 pension directions, replacing paras 8 and 9. The new rules allow banks to take a Letter of Undertaking from pensioners agreeing to refund excess credits. For bank-attributed errors, banks must credit the full excess amount to the government immediately and follow a prescribed recovery procedure in Annex III. For government-attributed errors, banks recover based on government instructions but need express customer authorization for recovery from account balance.
What it means for you
Agency banks must tighten internal controls to prevent pension overpayments and ensure prompt recovery. Banks need Board-approved policies on recovery, including cut-off periods, and robust monitoring. The Letter of Undertaking shifts some refund responsibility to pensioners, but banks must still follow due process, including written notice and recovery methods like available balance or capped pension deductions.
What you must do
- Obtain a signed Letter of Undertaking from each pensioner agreeing to refund any excess pension credited.
- Formulate a Board-approved policy on recovery of excess/wrongful pension payments, including a cut-off period.
- Implement the recovery procedure for bank-attributed errors as per Annex III, including immediate government credit and written notice to pensioners.
- Ensure for government-attributed errors, recovery from account balance requires express customer authorization.
- Update internal operating procedures and monitoring mechanisms for strict compliance.
Who it affects
Agency banks disbursing government pensions, Pensioners receiving government pensions through agency banks, Central and state government pension disbursing authorities
What is the new Letter of Undertaking requirement?
Banks may take a Letter of Undertaking from pensioners stating they will refund any excess pension credited to their account upon receiving a notice from the bank.