Economics • Banking & FinanceMedium
What does 'Prompt Corrective Action (PCA)' framework introduced by RBI entail for weak banks?
A. Immediate nationalization of the private bank.
B. Restrictions on branch expansion, dividend distribution, and risky lending to restore financial health.✓ Correct Answer
C. Complete waiver of all bad loans by the central government.
D. Mandatory merger with foreign financial institutions.
💡 Solution & Explanation
The Prompt Corrective Action framework allows the Reserve Bank of India to impose regulatory restrictions such as limits on branch expansion, dividend distribution, and risky lending when commercial banks breach specific capital, asset quality, or leverage thresholds. Nationalization, complete loan waivers, and foreign mergers are not part of this supervisory tool. It acts as an early intervention mechanism to restore the financial health of weak lenders.
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