Revised Prompt Corrective Action (PCA) Issued by RBI (Download PDF)

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A new notification by RBI namely “Revised Prompt Corrective Action (PCA) has come up for the banks. It shall be applicable to all the banks operating in India including small and foreign banks. It shall pay effectives from April 1 based on the financials of banks as of March 2017. This framework will take over the existing framework. The revised framework will be again reviewed after three years.

Revised Prompt Corrective Action (PCA) issued by RBI

Revised Prompt Corrective Action (PCA) Issued by RBI

Revised Prompt Corrective Action (PCA) issued by RBI

What is Reserve Bank of India?

  • It is the central banking institutions which have been controlling the monetary policies of the country
  • It was started in 1st April, 1935 and it got nationalized on 1st January, 1949
  • It plays an important role in the development strategy of the country
  • The general superintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors: the Governor, 4 Deputy Governors, 2 Finance Ministry representatives, 10 government-nominated directors to represent important elements of India’s economy, and 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi.
  • It is the central body that governs the banks and provides important financial services
  • A central bank is the vital financial apex institution of the nation
  • The key object is to perform functions which would maintain the economic stability and growth of an economy.
Structure of Reserve Bank of India

Structure of Reserve Bank of India

Structure of Reserve Bank of India

What was the need?

  • They were suppose to revise the framework in the 1st monetary policy review of the current fiscal held on April 6, as the bad loans including those already restructured reached USD 80 billion or 15 % of the system as of March 2017.
  • As per the estimates, the NPAs of state-run banks reached Rs. 6.3 lakh crore as of September compared to Rs. 5.5 lakh crore at the end of June 2016.

What are the guidelines?

  • Capital, asset quality and profitability will be made the basis with which the bank would be monitoring
  • Banks would be placed under PCA framework depending upon the audited annual financial results and RBI’s supervisory assessment.
  • Imposition of PCA by RBI by any bank for migration
  • Three kinds of risk have been defined by RBI
  • If a bank breaches the risk threshold, then mandatory actions include the restriction on dividend payment/remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director’s fees.
  • RBI can recommend the bank owner to bring new management
  • They can advice bank’s board for the activation of the recovery plan as approved by the supervisor
  • They can ask the board carry out a detailed review of business model
  • They can review the short term strategies and medium term plan
  • And they can carry out other corrective measures.

- Published/Last Modified on: April 28, 2017

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