PCA framework not intended to constrain normal banking operations, says RBI

The Reserve Bank of India (RBI) on Friday clarified that the Prompt Corrective Action (PCA) framework is not intended to constrain normal operations of the banks for the general public.

RBI had come across some misinformed communication circulating in certain sections of the media about closure of some Public Sector Banks (PSB) in the wake of their being placed under the PCA framework.

The apex bank further clarified that the Reserve Bank, under its supervisory framework, uses various measures/tools to maintain sound financial health of banks.

The PCA framework is one of the supervisory tools, which involves monitoring of certain performance indicators of the banks as an early warning exercise.

Its objective is to facilitate the banks to take corrective measures, including those prescribed by the Reserve Bank, in a timely manner, in order to restore their financial health.

The framework also provides an opportunity to the Reserve Bank to pay focused attention on such 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.

The Reserve Bank has emphasised that the PCA framework has been in operation since December 2002 and the guidelines issued on April 13, 2017 is only a revised version of the earlier framework.

RBI has again reiterated the above position.