PCA or Prompt Corrective Action is a framework set up by the Reserve Bank of India (RBI) to manage financially weak and mismanaged banks across the country. The PCA was launched in 2002 as a structured mechanism for early intervention for banks that are not able to manage their asset quality or are highly vulnerable to losses. In the following banking awareness study notes, we shall see more details about the PCA in terms of its meaning, benefits, and RBI guidelines.
Banking exams aspirants must have a clear understanding about the PCAs not only for the exam but also in terms of practical knowledge. For that, the following article on Prompt Corrective Action has been prepared by experts for the candidates to understand and prepare for the exam easily.
In this section, we shall learn more about the PCAs in detail as elaborated below.
The PCA (Prompt Corrective Action) framework is an RBI initiative with which it can intervene with the banks that are getting financially weaker. It is also meant for the banks that are vulnerable due to loss of profitability or are undercapitalized due to poor asset quality.
Under the PCA regulations, numerous restrictions are put on the banks in terms of lending, management compensation, directors’ fees, and more. As such, the Prompt Corrective Action is intended to improve the financial health of the banks that have weak financial metrics. It is done by keeping a watch on such banks.
A few leading banks which are being regulated under the PCA guidelines currently are the Indian Overseas Bank (IOB), United Bank of India, and Central Bank of India.
Besides, the PCA framework also uses the following capital measures to determine a bank’s capital category:
An important point to note is that the PCA framework is only applicable to the commercial banks and not on cooperative banks, non-banking financial institutions (NBFCs), and financial market infrastructure (FMI)
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