Economics • Banking & FinanceMedium
What is the primary purpose of the 'Prompt Corrective Action (PCA)' framework implemented by the Reserve Bank of India?
A. To bail out distressed non-banking financial institutions using sovereign reserves.
B. To monitor weak financial health metrics of commercial banks like capital, asset quality, and profitability and take timely remedial actions.✓ Correct Answer
C. To regulate digital payment gateways operating in cross-border transactions.
D. To streamline rural credit disbursement through regional rural banks.
💡 Solution & Explanation
The Prompt Corrective Action framework allows the Reserve Bank of India to intervene and impose operational restrictions on scheduled commercial banks showing severe vulnerabilities in capital adequacy, asset quality, and profitability. This regulatory tool aims to arrest financial deterioration before a bank becomes completely insolvent or systemic risks spread. It functions independently of government bailouts or separate non-banking financial sector regulations.
More Economics Banking & Finance questions
- What is the primary operational mechanism of the 'Standing Deposit Facility (SDF)' introduced by the Reserve…
- What is the primary role of the 'National Payments Corporation of India' (NPCI)?
- What is the policy regarding interest paid by the Reserve Bank of India to commercial banks on the balances…
- In the context of the Indian banking architecture, what does the term 'Bumper Issue' or 'Anchor Investor'…
- In the context of Indian banking regulations, what does the term 'Prompt Corrective Action (PCA)' framework…