Current Affairs

Public sector banks to come out of PCA framework by end of 2018

A respite for ailing PSBs!Union Government is expecting that public sector banks (PSBs) placed under RBI's Prompt Corrective Action (PCA) framework will come out of it by the end of this year.
Public sector banks to come out of PCA framework by end of 2018
  • As many as 11 out of 21 state-owned banks are currently under PCA framework.

What are the reasons behind this decision of Government?

  • Operational performance of PSBs has improved in April-June 2018 quarter, with steep reduction in net losses, increase in recoveries and significant improvement in provision coverage ratio. 
  • Besides, Government is also providing PSUs with adequate capital when required.
  • Some of the capital has already been given, as recoveries are taking place and there is a possibility that some banks will not need it in the future.
  • As of now, there is no bank that is breaching the regulatory norms prescribed by RBI.

What is Prompt corrective action (PCA) framework?

  • PCA framework is a supervisory tool of RBI, which involves monitoring of certain performance indicators of banks to check their financial health as an early warning exercise and to ensure that banks don't go bust.
  • Its objective is to facilitate banks to take corrective measures including those prescribed by RBI, in timely manner to restore their financial health.
  • It also provides opportunity to RBI to pay focussed attention on such banks by engaging with management more closely in those areas.
  • PCA framework is invoked on banks when they breach any of three key regulatory trigger points (or thresholds).
  • They are: Capital to risk weighted assets ratio, Net non-performing assets (NPA) and Return on Assets (RoA).
  • Depending on the risk thresholds set in PCA framework, banks are put in two types of restrictions, mandatory and discretionary depending upon their placement in PCA framework levels.
  • The mandatory restrictions are on dividend, branch expansion, director's compensation while discretionary restrictions include curbs on lending and deposit.

Question:

Q. Union Government is expecting public sector banks (PSBs) to come out of RBI's which framework that they are placed under by the end of this year?
a. Primary Corrective Action (PCA)
b. Preliminary Corrective Action (PCA)
c. Prompt Corrective Action (PCA)
d. None of the above
Public sector banks to come out of PCA framework by end of 2018 Public sector banks to come out of PCA framework by end of 2018 Reviewed by Inderjeet Virdi on August 20, 2018 Rating: 5

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