Section 20 of the Act imposes restrictions on loans and

Solution

Section 20(1)(a) prohibits a banking company from granting any loan or advance on the security of its own shares. Section 20(1)(b) additionally bars commitments for loans or advances to or on behalf of its directors, firms in which a director is interested, certain companies connected with its directors, and individuals for whom a director is a partner or guarantor. The bar on lending against own shares prevents a bank from artificially propping up the market value of its shares and exposing depositors to circular risk. The other listed forms of security (government securities, fixed deposits, mortgaged property, pledged gold) are ordinary and permissible bases for advances.