RBI announces revised Prompt Corrective Action (PCA) framework

Regulation of the banking system in India is one of the key roles played by the RBI. In this regard, discuss the importance of prompt correction action imposed by RBI on vulnerable banks. (150 Words)

Approach:  

• Introduce by briefly describing the role of RBI in the regulation of the banking sector under Banking Regulations Act 1949.
• Elaborate on PCA, when it is invoked and what restrictions are placed on the bank on which PCA is applied
• Discuss how PCA helps in larger failure of banks and loss of public money, which can cause instability in the financial sector of the country
• Conclusion