Analyze the structure and mandate of the Prompt Corrective Action (PCA) framework established by the Reserve Bank of India. Which of the following parameters triggers supervisory intervention under this framework?

💡 Solution & Explanation

The Prompt Corrective Action framework places financially weak commercial banks under regulatory watch based on specific risk thresholds relating to capital to risk-weighted assets ratio, net non-performing asset levels, leverage ratios, and profitability measured by return on assets. Intervention restricts expansion of risky assets, branch openings, and dividend distributions to restore financial viability. This preventive mechanism shields depositors and preserves systemic stability. Non-banking financial companies also fall under similar corrective guidelines.