Published: 15th Nov, 2021
Context
The Reserve Bank of India has revised Prompt Corrective Action (PCA) framework for Scheduled Commercial Banks which will be effective form Jan, 2021.
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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.
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