The Reserve Bank of India (RBI) released a revamped Prompt Corrective Action (PCA) framework for banks on Tuesday, which would allow supervisory action at the “right time” and serve as a tool for effective market discipline.
The redesigned approach would focus on capital, asset quality, and leverage, according to the banking regulator.
From January 1, 2022, the updated PCA framework will be in force.
According to the RBI, “The goal of the PCA framework is to allow supervisory involvement at the right time and oblige the monitored company to undertake and execute corrective actions in a timely manner in order to restore its financial health.”
In addition to the remedial steps mandated, the RBI highlighted that the PCA framework does not restrict the central bank from taking any further action it considers appropriate at any time.
According to the updated framework, “CRAR/Common Equity Tier I Ratio, Net NPA Ratio, and Tier I Leverage Ratio, respectively, would be indicators to be watched for capital, asset quality, and leverage.”
Source: The Hindu