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PCA Framework
April 16 , 2018
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- The Reserve Bank of India (RBI) has placed 11 public sector banks (PSBs) out of 21 State-owned banks under its Prompt Corrective Action (PCA) framework because of deteriorating performance.
- The 11 banks placed under PCA framework are IDBI Bank, UCO Bank, Bank of India (BoI), Central Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce (OBC), Bank of Maharashtra (BoM), United Bank of India, Corporation Bank and Allahabad Bank.
Prompt Corrective Action framework
- Banks can be placed under Prompt Corrective Action Framework by Reserve Bank of India if they have high non-performing assets (NPAs) and insufficient common equity tier 1 capital (CET 1) and negative return on assets (ROA).
- Under RBI’s new PCA framework, breaching a net NPA ratio of 6% invites action.
- Under the old rules, net NPA ratio had to breach 10% for taking action.
- The objective of the PCA framework is to facilitate the banks to take corrective measures including those prescribed by the RBI, in a timely manner, in order to restore the banks’ financial health.
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