Economics • Banking & FinanceMedium
What does the term 'Prompt Corrective Action (PCA)' framework, administered by the Reserve Bank of India, primarily monitor for commercial banks?
A. Digital fraud and cybersecurity threats
B. Capital adequacy, asset quality, and profitability✓ Correct Answer
C. Agricultural lending targets under priority sector guidelines
D. Foreign exchange reserves and hedging practices
💡 Solution & Explanation
The Prompt Corrective Action framework allows the central bank to monitor financial health through core indicators covering capital adequacy, asset quality, and profitability. Regulatory restrictions are automatically triggered when commercial banks breach predetermined threshold limits in these specific areas. This mechanism aims to arrest financial deterioration and safeguard depositors' interests.
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