Economics • Banking & FinanceMedium
What does the 'Prompt Corrective Action (PCA)' framework implemented by the Reserve Bank of India primarily restrict for weak banks?
A. Payment of dividends, branch expansion, and expansion of risky credit portfolios.✓ Correct Answer
B. Acceptance of foreign currency deposits and cross-border trade settlements.
C. Issuance of treasury bills and participation in the repo market.
D. Implementation of core banking solutions and digital payment gateways.
💡 Solution & Explanation
The Prompt Corrective Action framework enables the Reserve Bank of India to impose mandatory restrictions on weak banks, specifically targeting dividend payouts, branch expansion, and high-risk credit creation to preserve capital adequacy. These regulatory interventions are triggered when financial institutions breach specific risk thresholds regarding capital, asset quality, and profitability.
More Economics Banking & Finance questions
- Which institution in India holds the statutory authority to issue currency notes other than one-rupee notes?
- What does the term 'Priority Sector Lending (PSL)' mandate for commercial banks operating in India?
- What is 'Repo Rate' in the context of the monetary policy of the Reserve Bank of India?
- Which statutory body in India regulates and develops the micro, small, and medium enterprise financing…
- Which of the following entities is eligible to establish a 'Small Finance Bank' in India?