Current Affairs

UPSC PCA FRAMEWORK - English

PCA FRAMEWORK

Why in News?

Recently, The Reserve Bank of India (RBI) has removed the Central Bank of India (CBI) from its Prompt Corrective Action Framework (PCAF)

• PCA is a framework under which banks with weak financial metrics are put under watch by the RBI.
• The RBI introduced the PCA framework in 2002 as a structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
• The framework was reviewed in 2017 based on the recommendations of the working group of the Financial Stability and Development Council on Resolution Regimes for Financial Institutions in India and the Financial Sector Legislative Reforms Commission.

Parameters: The RBI has specified certain regulatory trigger points, as a part of PCA Framework, in terms of three parameters, i.e., Capital to Risk Weighted Assets Ratio (CRAR), net Non-Performing Assets (NPA) and Return on Assets (RoA)

Objective:

• The objective of the PCA framework is to enable supervisory intervention at an appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
• It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
• It is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
• The idea is to head off problems before they attain crisis proportions.

Recent Development: In 2021, the RBI revised the PCA Framework for scheduled commercial banks, round capital, asset quality and leverage will be key areas, earlier asset quality and profitability were the key areas for monitoring under framework.

SI/POLICE ACHIEVERS Achievers