In News
- Indian Overseas Bank (IOB) has been taken out of Prompt Corrective Action (PCA) restrictions by the RBI.
About
- The performance of the Indian Overseas Bank, currently under the Prompt Corrective Action Framework (PCAF) of RBI, was reviewed by the Board for Financial Supervision.
- It was noted that the bank is not in breach of the PCA parameters.
- The bank committed to complying with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis.
What is Prompt Corrective Action (PCA)?
- It is a framework under which banks with weak financial metrics are put under watch by the RBI.
- It was initiated by the RBI in 2002 to discipline banks when they report poor and risky financial performance.
- The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability.
Benefits
- As most bank activities are funded by deposits that need to be repaid, it is imperative that a bank carries a sufficient amount of capital to continue its activities.
- PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
- It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
Source: PIB
