Prompt Corrective Action (PCA) Framework for Scheduled Commercial Banks
16th Nov, 2021
The Reserve Bank of India has revised Prompt Corrective Action (PCA) framework for Scheduled Commercial Banks which will be effective form Jan, 2021.
What is PCA framework?
- Prompt Corrective Action (PCA) Framework refers to the central bank’s watchlist of weak banks.
- The regulator imposes restrictions like curbs on lending on such banks.
- The PCA Framework applies only to commercial banks and does not cover cooperative banks and non-banking financial companies.
- The objective of the PCA Framework is to enable Supervisory intervention at appropriate time and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
- Applicability: The PCA framework would apply to all banks operating in India including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.
- Capital, asset quality and leverage of the banks are some of key areas that will be taken into consideration for monitoring.
- The indicators that will be tracked for capital, asset quality and leverage would be CRAR/ common equity tier I ratio 2, net NPA ratio 3 and tier I leverage ratio 4 respectively.