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RBI’S REVISED PROMPT CORRECTIVE ACTION (PCA) FRAMEWORK

RBI’S REVISED PROMPT CORRECTIVE ACTION (PCA) FRAMEWORK

Context:

The RBI has released a revised Prompt Corrective Action (PCA) framework for banks to enable regulatory interventions at “appropriate time” and act as a market-leading regulatory tool.

Highlights of the Revised Framework:

  • The revised PCA framework will come into effect from January 1, 2022.
  • The PCA Framework does not prevent the Reserve Bank of India from taking any further action as it deems appropriate at any time, in addition to the remedial measures set out in the Framework.
  • Asset quality, capital, and leverage will be important areas to monitor.
  • The indicators to be tracked by capital, asset quality and leverage will be the CRAR / Common Equity Tier I Ratio, Net NPA Ratio and Tier I Leverage Ratio, respectively.

Purpose of the PCA:

  • The goal of the PCA Framework is to enable the Monitoring Intervention in a timely manner and to require the Supervised Entity to initiate and implement remedial measures in a timely manner, in order to restore its financial viability.

What is the PCA Framework?

  • It serves as a good marketing tool launched in December 2002.
  • These regulations were reviewed in April 2017, with the recommendations of the working group of the Financial Stability & Development Council.
  • Under this framework, the RBI puts banks with weak financial metrics under the clock.
  • It aims to explore the problems of Non-Performing Assets (NPAs) in the banking sector in India.
  • It helps to warn the regulator, investors and depositors in case the bank gets into trouble.

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