NEWS

Recently, the Reserve Bank of India (RBI) has announced a revised Prompt Corrective Action (PCA) framework.

WHAT IS REVISED

• Following provisions to be effective from January, 2022.
• Applies to all banks operating in India, including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.
• Payments banks and small finance banks (SFBs) have been removed from the list of lenders where prompt corrective action can be initiated.
• Excludes return on assets as a parameter that may trigger action under the framework.
• Breach of any risk threshold may result in the invocation of the PCA
• In the case of a default on the part of a bank in meeting the obligations to its depositors, possible resolution processes may be resorted to without reference to the PCA matrix.
• The RBI, as part of its mandatory and discretionary actions, may also impose appropriate restrictions on capital expenditure, other than for technological upgradation within Board approved limits
• Withdrawal of restrictions imposed will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements.

PROMPT CORRECTIVE ACTION (PCA) FRAMEWORK

• Framework in which banks with weak financial records are placed under the supervision of the Reserve Bank of India.
• By Reserve Bank
• Aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
• Introduced in December 2002
• Reviewed by the Reserve Bank keeping in view the international best practices and recommendations of the Working Group of the Financial Stability and Development Council (FSDC) on Resolution Regimes for Financial Institutions in India (January 2014) and the Financial Sector Legislative Reforms Commission (FSLRC, March 2013)
• First Revised PCA Framework in April 13, 2017