RBI revises PCA regime for urban co-operative banks facing financial stress

The Reserve Bank of India has rationalised its Supervisory Action Framework (SAF) to initiate prompt corrective action (PCA) for urban co-operative banks (UCBs) facing financial stress. 

UCBs may be placed under PCA if net non-performing assets (NPAs) exceed 6 per cent of net advances, incurs losses for two consecutive financial years or has accumulated losses and capital adequacy falls below 9 per cent.

To halt failing asset quality, the RBI may prescribe steps like reduction in exposure limits for fresh loans and advances, restriction on fresh loans and advances carrying risk-weights more than 100 per cent. There would also be curtailment of sanction and renewal of credit facilities to sectors having high proportion of NPAs/defaults. The regulator may place restriction on declaration or payment of dividend/donation without prior approval of RBI.

For tackling with losses and accumulated losses on balance, the RBI may restrict ailing banks from incurring capital expenditure beyond a specified limit. The RBI will also have discretion to ask banks to take measures to reduce interest and operating/administrative expenses.

As for action to correct capital adequacy ratio, the RBI may restrict expansion of size of the balance sheet, put curbs on fresh borrowings, except for meeting temporary liquidity mismatches.

There may be prohibition on sanction, disbursal of fresh loans and advances other than loans against collateral security of term deposits / NSCs / KVPs / insurance policies. There could be also prohibition on expansion of size of the deposits, the central bank said. Although supervisory action will primarily be based on the criteria specified under the revised SAF, the RBI will be free take appropriate supervisory action in case stress is noticed in other important indicators parameters or in case of serious governance issues.