Economics • Banking & FinanceMedium
In the context of Indian banking, what does the term 'Prompt Corrective Action (PCA)' framework trigger when a bank breaches critical risk thresholds?
A. Immediate liquidation of the bank's assets by the central government
B. Mandatory restrictions on dividend distribution, branch expansion, and capital expenditure✓ Correct Answer
C. Automatic waiver of all non-performing agricultural loans
D. Full exemption from maintaining the mandatory Cash Reserve Ratio
💡 Solution & Explanation
The Prompt Corrective Action framework allows the Reserve Bank of India to step in and place mandatory restrictions on weak banks regarding dividend distribution, branch expansion, and capital expenditure when they breach risk thresholds. It does not liquidate assets automatically or waive agricultural loans.
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