Economics • Banking & FinanceHard
What is the primary objective of the 'Prompt Corrective Action (PCA)' framework administered by the Reserve Bank of India for supervised financial institutions?
A. To restructure retail debt portfolios during nationwide natural disasters
B. To enable supervisory intervention at an early stage to restore financial health of banks breaching capital, asset quality, or leverage thresholds✓ Correct Answer
C. To facilitate mergers of weaker regional rural banks with large public sector commercial banks
D. To manage foreign exchange reserves and intervene in currency markets to curb excessive volatility
💡 Solution & Explanation
Prompt Corrective Action framework allows the Reserve Bank of India to intervene proactively when commercial banks breach critical thresholds concerning capital adequacy, net non-performing assets, and leverage ratios. It imposes restrictions on dividend distribution, branch expansion, and capital expenditure to arrest further deterioration of financial health. Prompt corrective action ensures that troubled institutions are rehabilitated or resolved before systemic contagion occurs. Capital to Risk-Weighted Assets Ratio is a core parameter triggering such supervisory interventions.
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