RBI clarifies PCA does not restrict bank's public operation

The Reserve Bank of India has clarified that the Prompt Corrective Action (PCA) framework invoked on banks will not restrict operations for the general consumers or public at large.

Amid some misinformed reports in media including social media, the RBI has clarified in a statement on Monday that the "PCA framework is not intended to constrain normal operations of the banks for the general public".

The PCA framework is, thus, intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger, the central bank said.

It further clarified that the Reserve Bank, under its supervisory framework, uses various measures/tools to maintain sound financial health of banks. PCA framework is one of such supervisory tools.

As of now, RBI has initiated PCA action on four banks including Indian Overseas Bank (in 2015), IDBI Bank, UCO Bank and Dena Bank. The action has been invoked due to high level of NPAs of over 10-15 percent and negative return on assets (ROAs).

PCA involves monitoring of certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to capital, asset quality etc. are breached.

Its objective is to facilitate the banks to take corrective measures including those prescribed by the Reserve Bank, in a timely manner, in order to restore their financial health. The framework also provides an opportunity to the RBI to pay focussed attention on such banks by engaging with the management more closely in those areas.

The Reserve Bank has emphasised that the PCA framework has been in operation since December 2002 and the guidelines issued on April 13, 2017 is only a revised version of the earlier framework., RBI clarified. #casansaar (Source - MoneyControl)