Revised Prompt Corrective Action (PCA) by RBI

Revised Prompt Corrective Action (PCA) by RBI

Question – Reserve bank of India has issued a notification titled “Revised Prompt Corrective Action (PCA) framework for banks.”This PCA framework will be effective from-
(a) 31st March, 2017
(b) 1st April, 2017
(c) 21st April, 2017
(d) 31st March, 2018

Answer-(b)
Related Facts:

  • On April 13th, 2017, Reserve Bank of India has issued a notification regarding Revised Prompt Corrective Action (PCA) framework for banks.
  • The provisions of the revised PCA framework will be effective from April 1, 2017 based on the financials of the banks for the year ended March 31, 2017.
  • The revised framework would apply to all banks operating in India including small and foreign banks.
  • The existing PCA framework for banks has since been reviewed and revised; framework would be reviewed after three years.
  • The PCA framework does not preclude the Reserve Bank of India from taking any other action as it deems fit in addition to the corrective actions prescribed in the framework.
  • The salient features of revised PCA Framework for Banks are as follows:
    A. Capital, asset quality and profitability continue to be the key areas for monitoring in the revised framework.
    B. Indicators to be tracked for Capital, asset quality and profitability would be CRAR/ Common Equity Tier I ratio1, Net NPA ratio2 and Return on Assets3respectively.
    C. Leverage would be monitored additionally as part of the PCA framework.
    D. Breach of any risk threshold (as detailed under) would result in invocation of PCA.
    E. The PCA framework would apply without exception to all banks operating in India including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.
    F. A bank will be placed under PCA framework based on the audited Annual
  • Financial Results and the Supervisory Assessment made by RBI.
  • Common menu for selection of discretionary corrective actions are Special Supervisory interactions, Strategy related actions, Governance related actions Capital related actions, Credit risk related actions, HR related actions, Profitability related Actions , Operations related actions.

Reference:
https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10921&Mode=0
http://in.reuters.com/article/brief-india-cenbank-announces-revised-pr-idINFWN1HL0A6
http://economictimes.indiatimes.com/news/industry/banking/finance/banking/rbi-issues-revised-features-of-prompt-corrective-action-framework-for-banks/articleshow/58168369.cms