The Reserve Bank of India (RBI) on November 2, 2021 issued a revised PCA (Prompt Corrective Action) framework for Scheduled Commercial Banks (SCBs), and the changes will be effective from 1 Jan, 2022.
- The objective of the PCA framework, RBI said, is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
- PCA framework would apply to all banks operating in India including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators. The indicators that will be tracked for capital, asset quality and leverage would be CRAR/ common equity tier I ratio 2 , net NPA ratio 3 and tier I leverage ratio 4 respectively.
- Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank’s capital to its risk.
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