Prompt Corrective actin (PCA) Framework

Prompt Corrective actin (PCA) Framework

• PCA norms allow the regulator to place certain restrictions such as halting branch expansion and stopping dividend payment. It can even cap a bank's lending limit to one entity or sector. Other corrective action that can be imposed on banks include special audit, restructuring operations and activation of recovery plan.
• Bank's promoters can be asked to bring in new management, too. The RBI can also supersede the bank's board, under PCA.

When is PCA invoked?

⏩The PCA is invoked when certain risk thresholds which are based on certain levels of asset quality, profitability, capital and the like.

The third such threshold, which is maximum tolerance limit, sets net NPA at over 12% and negative return on resets for four consecutive years.

What are the types of sanctions?

⏩There are two type of restrictions, mandatory and discretionary. Restrictions on dividend, branch expansion, directors compensation, are mandatory while discretionary restrictions could include curbs on lending and deposit.

What will a bank do if PCA is triggered?

⏩Banks are not allowed to re new or access costly deposits or take steps to increase theire fee-based income. Banks will also have to launch a special drive reduce the stock of NPAs and contain generation of fresh NPAs. They will also not be allowed to enter into new lines of business. RBI will also impose restrictions on the bank on borrowings from inter bank market.