{"id":7536,"date":"2022-08-23T00:00:00","date_gmt":"2022-08-23T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/23-08-2022\/prompt-corrective-action-pca-framework\/"},"modified":"2022-08-23T00:00:00","modified_gmt":"2022-08-23T00:00:00","slug":"prompt-corrective-action-pca-framework","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/23-08-2022\/prompt-corrective-action-pca-framework","title":{"rendered":"Prompt Corrective Action (PCA) Framework"},"content":{"rendered":"<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>In News<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The<\/span><span style=\"font-size:12pt\"><strong> Central Bank of India<\/strong><\/span><span style=\"font-size:12pt\"> may soon exit the Prompt Corrective Action (PCA) framework of the RBI as there is an improvement in the financial health of the bank.\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The Central Bank of India is the<\/span><span style=\"font-size:12pt\"><strong> only public sector bank<\/strong><\/span><span style=\"font-size:12pt\"> under PCA right now.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>About<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"> <\/span><\/span><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Prompt Corrective Action (PCA) framework<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>\u00a0<\/strong><\/span><\/span><\/p>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><img decoding=\"async\" alt=\"C:UsersWELCOMEDesktopUntitled.jpg\" src=\"https:\/\/lh6.googleusercontent.com\/kmJfAf7YkZBKns5j6BWhnjg2Qje1RA6ZgBJDlMBwtG3qx7fa8eFuOGLf9YO5lFZOs4jXYP3QXn1fWFi2IsN20jofdvR3QE2LaHDiS3Tpp4ON3WKY3eIY7Olp3yzFTD-oCs2IdM9dpeMQI0tTX24COhY\" style=\"height:285.0; width:602.0\" \/><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Introduction<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">:<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The RBI\u2019s PCA Framework was introduced in 2002 as a structured early intervention mechanism along the lines of the US Federal Deposit Insurance Corporation\u2019s PCA framework.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Banks under this framework<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">In the past, IDBI Bank, Indian Overseas Bank and Central Bank of India were put under the PCA framework.\u00a0<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The first two banks are out of PCA, while the Central Bank of India is still under the watch of the RBI.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Objectives<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The objective of the PCA Framework is to enable Supervisory intervention at the appropriate time and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The PCA framework is also intended to act as a tool for effective market discipline.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">It refers to the central bank\u2019s watch list of weak banks.<\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">PCA entails curbs on high-risk lending, setting aside more money on provisions and restrictions on management salary.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Does not preclude the Reserve Bank of India<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The PCA Framework does not preclude the Reserve Bank of India from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the Framework.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Application<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">The PCA Framework would apply to all banks operating in India including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Assessment:<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">A bank will generally be placed under the PCA framework based on the Audited Annual Financial Results and the ongoing Supervisory Assessment made by RBI.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Time period<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">:\u00a0<\/span><\/span>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\">RBI may impose PCA on any bank during the course of a year (including migration from one threshold to another) in case the circumstances warrant.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>If a bank is under the PCA framework then there will be three risk thresholds<\/strong><\/span><\/span><\/p>\n<p style=\"text-align:center\"><span style=\"font-size:11pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><img decoding=\"async\" alt=\"C:UsersWELCOMEDesktopPrompt-Corrective-Action-ut.png\" src=\"https:\/\/lh3.googleusercontent.com\/NzeitnaizWbDUG5vRN0AbNq9JgHoprbQsLHi435rMB7DwkQZWb_gMba0i6qYY7o4cOcpsqjzML1jykKUNjEA41E8a6BmzGYeTSPgY-1rUUXNtVU2wk1xfwTDmX0Ww8KuIk4jkx_5n8Zy4oKCbB5URI8\" style=\"height:284.0; width:572.0\" \/><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Firstly<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">, restrictions on dividend distribution\/remittance of profits. Also, restrictions will be there on Promoters\/Owners\/ to bring in capital.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">In the\u00a0<\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>second risk<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">\u00a0threshold, restrictions will be there on branch expansion; domestic and\/or overseas.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">In the\u00a0<\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>third risk<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">\u00a0threshold, appropriate restrictions on capital expenditure, other than for technological up-gradation within Board approved limits.\u00a0<\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Benefits of PCA Framework<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Maintains capital<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: 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.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Alert mechanism and a regulator<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Checks NPA<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Rectify the bank\u2019s mistakes<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: The aim of PCA is to rectify the bank\u2019s mistakes before they attain crisis proportions.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Regulation<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: RBI will regulate loan disbursals\/ credit by PCA banks to unrated borrowers or those with high risks; however, it will not place a complete ban on the bank\u2019s lending.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Restoring the financial health of a bank<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: Basically, PCA helps RBI in restoring the financial health of a bank by monitoring key performance indicators of banks and taking corrective measures on the same.<\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Strengthening the financial core of the institution<\/strong><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">: It may also stop banks from entering new lines of businesses, thereby strengthening the financial core of the institution.<\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Source:<\/strong><\/span><\/span><a href=\"https:\/\/www.livemint.com\/news\/india\/central-bank-of-india-may-soon-exit-the-restrictions-of-rbi-s-pca-framework-11661075096085.html\" style=\"text-decoration-line:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><span style=\"color:#1155cc\"><strong> LM<\/strong><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News The Central Bank of India may soon exit the Prompt Corrective Action (PCA) framework of the RBI as there is an improvement in the financial health of the bank.\u00a0 The Central Bank of India is the only public sector bank under PCA right now. About Prompt Corrective Action (PCA) framework\u00a0 Introduction: The RBI\u2019s [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7537,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-7536","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/5322371Screenshot_20220822-210619_Chrome.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/7536","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=7536"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/7536\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/7537"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=7536"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=7536"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=7536"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}