Prompt Corrective Action (PCA)

In News 

• Indian Overseas Bank (IOB) has been taken out of Prompt Corrective Action (PCA) restrictions by the RBI.

About 

• The performance of the Indian Overseas Bank, currently under the Prompt Corrective Action Framework (PCAF) of RBI, was reviewed by the Board for Financial Supervision.
• It was noted that the bank is not in breach of the PCA parameters.
• The bank committed to complying with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis.

What is Prompt Corrective Action (PCA)?

• It is a framework under which banks with weak financial metrics are put under watch by the RBI.
• It was initiated by the RBI in 2002 to discipline banks when they report poor and risky financial performance.
• The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital ratios, asset quality and profitability.

Benefits 

• As most bank activities are funded by deposits that need to be repaid, it is imperative that a bank carries a sufficient amount of capital to continue its activities.
• PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.
• It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.

Source: PIB