Economics • Banking & FinanceHard
Examine the regulatory framework of 'Prompt Corrective Action' administered by the Reserve Bank of India for scheduled commercial banks. Which of the following parameters are evaluated to trigger regulatory intervention?
A. Capital to risk-weighted assets ratio, net non-performing asset ratio, and leverage ratio.✓ Correct Answer
B. Total agricultural credit disbursement volume, rural branch expansion count, and priority sector lending shortfall.
C. Foreign direct investment inflows, foreign exchange reserves adequacy, and external commercial borrowings.
D. Employee wage growth rates, pension fund liabilities, and corporate social responsibility expenditure.
💡 Solution & Explanation
The prompt corrective action framework monitors banks based on key financial indicators including capital to risk-weighted assets ratio, net non-performing asset levels, and tier-one leverage. Alternative metrics focus on rural lending or corporate social responsibility which do not determine core solvency triggers. When banks breach specified thresholds, restrictions are imposed on dividend distribution, branch expansion, and lending activities.
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