Economics • Banking & FinanceMedium
What is the primary objective of the 'Prompt Corrective Action (PCA)' framework administered by the Reserve Bank of India for scheduled commercial banks?
A. To enable supervisory intervention at an early stage and prompt banks to rebuild their capital, asset quality, and profitability when they breach specified risk thresholds.✓ Correct Answer
B. To liquidate failing cooperative banks and merge their assets into state-run commercial banks.
C. To penalize banks that fail to meet rural branch expansion quotas set by the Ministry of Finance.
D. To regulate interest rates charged on microfinance loans and protect vulnerable borrowers.
💡 Solution & Explanation
The Prompt Corrective Action framework enables the Reserve Bank of India to intervene early and impose restrictions on undercapitalized or financially distressed commercial banks. It monitors specific thresholds of capital, asset quality, and profitability to restore financial health without liquidating institutions immediately.
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