Prompt Corrective Action (PCA)

PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.

The PCA framework specifies the trigger points or the level in which the RBI will intervene with corrective action. 

These trigger points are expressed in terms of certain parameters for the banks. These are:

~ Capital to Risk weighted Asset Ratio (CRAR);

~ Net Non-Performing Assets (NPA);

~ Return on Assets (RoA);

~ Leverage ratio.

When these parameters reach the set trigger points for a bank mentioned by the RBI, the RBI initiates certain structured and discretionary actions for the bank. 

Under PCA, the RBI can place certain restrictions based on these parameters. The restrictions may include the following:

~ Halting branch expansion;

~ Stopping dividend payment;

~ Cap a bank’s lending limit to one entity or sector;

~ Udertake special audit, restructuring operations and activation of recovery plan;

~ Banks promoters can be asked to bring in new management;

~ RBI can also supersede the bank’s board.