Economics • Banking & FinanceMedium
What is the primary objective of the 'Prompt Corrective Action (PCA)' framework administered by the Reserve Bank of India?
A. To nationalize failing private sector banks and merge them with regional rural cooperatives
B. To monitor financial health parameters of commercial banks and intervene early when capital, asset quality, or leverage deteriorate✓ Correct Answer
C. To provide direct budgetary grants to industrial borrowers defaulting on corporate term loans
D. To regulate interest rates charged by microfinance institutions operating in rural districts
💡 Solution & Explanation
The PCA framework enables the Reserve Bank of India to supervise and intervene in commercial banks showing signs of financial stress across key metrics like capital adequacy, non-performing assets, and profitability. Restrictions under PCA include curbs on branch expansion, dividend distribution, and high-risk lending activities. The framework acts as an early warning tool to safeguard systemic banking stability.
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