Prompt corrective action not aimed at causing inconvenience to public: RBI

Statement follows rumours alleging restrictive actions would be imposed on few weak banks

The Reserve Bank of India (RBI) on Monday clarified that its prompt corrective action (PCA) on banks is only to discipline erring banks and not to inconvenience the customers.

The central bank was forced to issue the circular after misinformed posts were circulated in social media and on WhatsApp implying that the central bank was on course to impose restrictive actions on some weak banks. The message, in particular, drew parallels to Kapol Cooperative Bank on which the central bank has imposed some withdrawal restrictions. The fake posts, warning public of the safety of their deposits, were forwarded by many and created some panic in public.

Officially, RBI has imposed PCA framework on IDBI Bank, Uco Bank, Dena Bank and Indian Overseas Bank. But that doesn't mean that these banks are unsafe for public deposits.

“The Reserve Bank of India has come across some misinformed communication circulating in some section of media including social media, about the Prompt Corrective Action (PCA) framework,” RBI said in its statement, adding: “The Reserve Bank has clarified that the PCA framework is not intended to constrain normal operations of the banks for the general public.”

The RBI went on explaining that PCA is only a tool under its supervisory framework to maintain sound financial health of banks. PCA is used to monitor certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to capital, asset quality etc. are breached. This helps nursing the banks to health and also gives an opportunity to the RBI to pay focussed attention on these banks by engaging with the management more closely in those areas.

“The PCA framework is, thus, intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger,” it said, while assuring that the PCA framework is in operation since December 2002, while only a revised version of this was issued on April 13, 2017.