RBI Revises Prompt Corrective Action Framework For Commercial Banks, To Be Effective From January 1, 2022

Reserve Bank of India has revised the existing prompt corrective action (PCA) framework for scheduled commercial banks, which will be applicable from January 1, 2022. The main purpose of this exercise is to enable supervisory intervention at an appropriate time, following which, the entity being supervised is expected to implement remedial measures in a time-bound manner to restore its financial stability.

In a statement issued on Tuesday, RBI said 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.

The central bank will monitor significant areas like capital, asset quality and leverage of the banks under the exercise.

Normally a bank is placed under the PCA framework on the basis of its audited annual financial results and the ongoing supervisory assessment made by RBI.

RBI may impose PCA on any bank during the course of a year (including migration from one threshold to another) in case the circumstances so warrant.

Once a bank is placed under corrective action, a few changes are suggested for it, based on the bank's risk threshold, by RBI.

The RBI can impose mandatory restrictions on dividend distribution of profits of the bank in question and can also restrict a bank's branch expansion (domestic as well as overseas ones).