21. PROMPT CORRECTIVE ACTION

Question 1

What is Prompt Corrective Action (PCA)?

Answer 1

PCA is a framework used by RBI to maintain the financial health of banks by setting regulatory trigger points based on capital adequacy, asset quality (NPA), and leverage ratios.

Question 2

What are the three key parameters for PCA trigger points?

Answer 2

Capital Adequacy Ratio, Asset Quality (NPA levels), and Leverage Ratio (Equity Capital/Total Assets).

Question 3

What happens when a bank is placed under PCA by RBI?

Answer 3

RBI imposes restrictions on branch expansion, dividend distribution, management compensation, lending activities, and may even change the bank’s management or merge it.

Question 4

Can banks under PCA continue their normal banking operations?

Answer 4

Yes, PCA does not restrict banks from normal operations like accepting deposits or conducting transactions for the general public.

Question 5

What are some extreme actions RBI can take under PCA?

Answer 5

RBI can increase provisioning requirements, bring in new management, appoint consultants, change ownership, merge the bank, or even supersede the board.

Question 6

Why does RBI implement PCA?

Answer 6

To ensure banks take timely corrective measures to restore their financial health and avoid riskier activities that could weaken their balance sheets.

Question 7

Which banks are excluded from the PCA framework?

Answer 7

Regional Rural Banks (RRBs), Payment Banks, and Small Finance Banks are not covered under PCA.

Question 8

What alternative framework is used for Urban Cooperative Banks (UCBs)?

Answer 8

The Supervisory Action Framework (SAF) is used for UCBs instead of PCA.

Question 9

Has PCA been implemented for Non-Banking Financial Companies (NBFCs)?

Answer 9

Yes, RBI has introduced PCA for NBFCs as well.