Economics • Banking & FinanceHard
Analyze the structural framework of the 'Prompt Corrective Action (PCA)' framework administered by the Reserve Bank of India. Which of the following triggers initiates supervisory intervention under this framework?
A. Breaching risk thresholds related to capital adequacy, net non-performing assets, and leverage ratios✓ Correct Answer
B. Experiencing a temporary decline in quarterly fee-based income from mutual fund distribution
C. Failing to meet corporate social responsibility spending quotas mandated by company law
D. Opening fewer than the mandated number of rural bank branches in remote districts
💡 Solution & Explanation
The Prompt Corrective Action framework allows the Reserve Bank of India to intervene and impose restrictions on commercial banks that breach specific financial risk thresholds regarding capital to risk-weighted assets ratio, net non-performing asset ratios, and Tier 1 leverage ratios. Restrictions under PCA can include bans on dividend distribution, curbs on branch expansion, and limitations on credit growth. The framework aims to arrest deterioration in institutional financial health before insolvency occurs.
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