The RBI has issued a revised Prompt Corrective Action (PCA) framework for banks to enable supervisory intervention at “appropriate time” and also act as a tool for effective market discipline. Capital, asset quality and leverage will be the key areas for monitoring in the revised framework. The revised PCA framework will be effective from January 1, 2022. The framework was last revised in April 2017.
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What is the objective of PCA?
The objective of the PCA framework is to enable supervisory intervention at an appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health. The central bank also stressed that the PCA framework does not preclude the RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed.
Which banks are covered under the PCA framework?
PCA framework is applicable only to commercial banks. Co-operative banks and non-banking financial companies (NBFCs) are not covered under it.
- The framework will apply to all banks operating in India, including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.
- The framework also details conditions for exit from PCA and withdrawal of restrictions. If a bank is put under the PCA, several restrictions are placed on it.
- The restrictions are imposed on dividend distribution and remittance of profits, bringing in the capital (in the case of foreign banks), branch expansion, and capital expenditure.