Economics • Banking & FinanceHard
Examine the structural parameters of the Prompt Corrective Action framework administered by the Reserve Bank of India. Under what financial circumstances is a supervised banking entity placed under this restrictive mechanism?
A. Breaching critical risk thresholds relating to capital adequacy, asset quality, profitability, and leverage✓ Correct Answer
B. Achieving exceptionally high credit growth rates exceeding industry average benchmarks
C. Expanding branch networks into unbanked rural districts without prior administrative clearance
D. Issuing foreign currency denominated bonds in international capital markets
💡 Solution & Explanation
The Prompt Corrective Action framework is triggered when scheduled commercial banks breach pre-specified risk thresholds concerning capital to risk-weighted assets ratio, net non-performing asset levels, and profitability metrics. Supervisory restrictions under this framework include curbs on dividend distribution, branch expansion, and capital expenditure. This proactive intervention aims to restore financial health before a bank becomes insolvent.
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