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Banking Regulation Act, 1949 · Section guide

Section 20: Restrictions on loans and advances

Reviewed by CA Nikhil Gupta · Last reviewed 18 September 2026

Section 20 — Restrictions on loans and advances. Restricts loans/advances on the security of the bank’s own shares and connected lending to directors and specified interests; board-level conflict and disclosure controls must be applied to the exact relationship captured by the section.

Official statute linkedProvision-specific anatomyPractical case + evidence file
Official text: DFS consolidated Act

Statutory structure and provision map

This map is a provision-specific explanation, not a substitute for the exact statutory text.

Core statutory rule

Restricts loans/advances on the security of the bank’s own shares and connected lending to directors and specified interests.

Condition / limitation

board-level conflict and disclosure controls must be applied to the exact relationship captured by the section.

Source and effective-date control

Apply the wording of Section 20 that was in force on the event date; use the official Act and any applicable commencement/amending instrument linked on this page.

Professional application

Enumerate prohibited connected lending categories, definitions, exceptions and recovery/consequence provisions; work a director-interest example.

Evidence / working-paper checklist

  • Section 20 evidence: borrower and connected-party declarations.
  • Section 20 evidence: sanction note and security/interest documentation.
  • Section 20 evidence: board/RBI approval where the provision requires it.
  • Section 20 evidence: credit-policy mapping to any RBI direction issued under sections 21/35A.

Retain the event date and source version with the file so the conclusion remains reproducible after later amendments.

Common mistakes to avoid

  • For Section 20, avoid testing only the borrower name and not the prohibited relationship or interest.
  • For Section 20, avoid confusing an RBI policy direction with a discretionary internal credit policy.
  • For Section 20, avoid remitting/restructuring an exposure without checking statutory board/RBI restrictions.

Related sections inside the Act

Section 20A — Restrictions on power to remit debtsSection 21 — Power of Reserve Bank to control advances by banking companiesSection 35A — Power of the Reserve Bank to give directionsSection 18 — Cash reserveSection 19 — Restriction on nature of subsidiary companies

Use these links to read Section 20 in its statutory sequence, especially where the provision imports definitions, approvals, appeals, penalties or winding-up consequences from neighbouring sections.

Current-law source control

Source control: Section 20 is anchored to the official DFS consolidated text; later changes require separate Gazette verification.

Dated matters: verify any later Gazette, RBI direction or binding judgment affecting Section 20 on the event date.

Disclaimer

This Finin2min page is an educational and professional reference. Banking regulation is fact-, entity- and date-sensitive. Verify the current Act, Gazette amendments and commencement notifications, applicable RBI Rules/directions and the transaction record before acting or filing.