Economics • Banking & FinanceHard
Analyze the structural implications of the Reserve Bank of India's Prompt Corrective Action (PCA) framework on weak commercial or cooperative banks operating within regional state jurisdictions. Which regulatory intervention characterizes this framework?
A. Mandatory expansion of high-risk speculative lending abroad
B. Imposition of restrictions on dividend distribution, branch expansion, and risky asset growth to restore financial health✓ Correct Answer
C. Immediate liquidation of all depositor accounts without compensation
D. Complete deregulation of capital adequacy ratios
💡 Solution & Explanation
The Prompt Corrective Action framework allows the central bank to intervene early when regulated entities breach critical thresholds of capital, non-performing assets, or leverage, enforcing restrictions on payouts and risky expansions. It aims to restore solvency without resorting to immediate liquidation. Cooperative banks failing PCA norms undergo strict supervisory restructuring.
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