PROMPT CORRECTIVE ACTION (Syllabus: GS Paper 3 – Economy)

Context: Reserve Bank of India launched prompt corrective action (PCA) framework for urban co-operative banks.

Prompt Corrective Action:

• About: PCA (Prompt Corrective Action) is a framework established by the RBI to monitor banks with weak financial metrics
• Historical Background: Introduced in 2002 as an early-intervention mechanism for undercapitalized banks or those with poor asset quality and loss of profitability.

oReviewed in 2017 based on recommendations from the Financial Stability and Development Council and the Financial Sector Legislative Reforms Commission.

• Parameters: Capital to Risk Weighted Assets Ratio (CRAR), Net Non-Performing Assets (NPA), Return on Assets (RoA).
• Objective: Enable timely supervisory intervention to restore financial health.

oAddress issues related to Non-Performing Assets (NPAs) in the Indian banking sector.

oAlert regulators, investors, and depositors to potential troubles, aiming to prevent problems from escalating into crises