The Reserve Bank of India has revised the prompt corrective action (PCA) plans for all scheduled commercial banks (SCBs). The revised framework will be effective from January 1 next year.
In the revised framework, capital, asset quality and leverage will be the key areas for monitoring. The profitability clause, which includes negative return on assets (RoA) for determining risk threshold, has been removed in the revised rules.
The indicators to be tracked for these key areas will be CRAR/ common equity tier I ratio 2, net NPA ratio 3 and tier I leverage ratio 4 respectively. Breach of any risk threshold may result in the invocation of PCA.
The regulator stated that the objective of the PCA framework is to enable supervisory intervention at an appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
The PCA framework will apply to all banks in India, including foreign banks operating through branches or subsidiaries, based on the breach of risk thresholds of identified indicators. The framework is also intended to act as a tool for effective market discipline.
