Economics • Banking & FinanceHard
Examine the role of the 'Prompt Corrective Action' framework administered by the Reserve Bank of India for scheduled commercial banks. At which financial trigger points is the framework mandated to be initiated?
A. When a bank breaches regulatory thresholds concerning capital adequacy, non-performing assets, or leverage ratios.✓ Correct Answer
B. When a bank experiences a temporary drop in its quarterly retail credit disbursement targets.
C. When a bank decides to merge with a regional rural cooperative operating in another state.
D. When foreign portfolio investment inflows into the bank exceed fifty percent of total equity.
💡 Solution & Explanation
The Prompt Corrective Action framework is triggered when commercial banks breach specific prudential thresholds regarding capital adequacy, net non-performing assets, and leverage ratios. It imposes restrictions on dividend distribution, branch expansion, and capital expenditure to restore financial health. This mechanism enables early supervisory intervention before a struggling bank becomes entirely insolvent.
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