PCA framework revised: Asset high quality, capital, leverage key

The Reserve Bank on Tuesday introduced a revised Prompt Corrective Action (PCA) framework for banks to allow supervisory intervention at an “appropriate time” and in addition act as a software for efficient market self-discipline. The new provisions can be efficient from January 1, 2022, an RBI notification mentioned. The revised framework excludes return on belongings as a parameter which can set off motion underneath the framework.
Payments banks and small finance banks (SFBs) have additionally been faraway from the record of lenders the place immediate corrective motion may be initiated. Capital, asset high quality and leverage would be the key areas for monitoring within the revised framework, the RBI mentioned.
“Indicators to be tracked for capital, asset quality and leverage would be CRAR/ common equity tier I ratio, net NPA ratio and tier I leverage ratio, respectively,” as per the revised framework. In governance associated actions, the RBI can supersede the board underneath Section 36ACA of the BR Act, 1949.
The breach of any threat threshold might end in invocation of the PCA. The framework will apply to all banks working in India, together with overseas banks working by way of branches or subsidiaries based mostly on breach of threat thresholds of recognized indicators. “A bank will generally be placed under PCA framework based on the audited annual financial results and the ongoing supervisory assessment made by the RBI,” it mentioned, including, “The 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.”