Economics • Banking & FinanceMedium
What is the primary objective of introducing the 'Prompt Corrective Action' (PCA) framework by the Reserve Bank of India for commercial banks?
A. To penalize banks for expanding their branch networks in rural areas
B. To monitor financial health indicators such as capital, asset quality, and profitability and intervene early in weak institutions✓ Correct Answer
C. To nationalize failing private sector financial institutions automatically
D. To provide direct budgetary bailouts funded by central government tax revenues
💡 Solution & Explanation
The Prompt Corrective Action framework enables the Reserve Bank of India to supervise and intervene in commercial banks that exhibit vulnerability across key financial parameters like capital adequacy, non-performing assets, and profitability before they become insolvent. Restrictive actions are imposed to restore financial health. Alternative options describe punitive branch restrictions or direct budgetary bailouts that do not reflect RBI's regulatory protocol. It maintains systemic stability across the banking sector.
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