Reserve Bank of India releases PCA framework for urban cooperative banks

The Reserve Bank of India (RBI) on Friday issued a Prompt Corrective Action (PCA) framework to take timely steps for improvement of weak Urban Cooperative Banks (UCBs).

The PCA framework for UCBs will replace the existing Supervisory Action Framework (SAF) and come into effect from April 01, 2025.

RBI in a statement said the norms to invoke framework for weak UCB are Capital Adequacy Ratio (CAR) up to 250 basis below the required CAR, net non-performing assets (NPAs) above 6.0 per cent but below 9.0 per cent and incurring losses during two consecutive years.

The breach of any risk threshold may result in invocation of PCA, RBI said.

The new framework will be applicable to UCBs with deposits above Rs 100 crore. 

Urban Co-operative Banks have been categorised into four tiers.

The tier 1 consists of UCBs with deposits up to Rs 100 crore, tier 2 are those with deposits above Rs 100 crore and less than Rs 1,000 crore. The tier 3 will consist of UCBs with deposits above Rs 1,000 crore and less than Rs 10,000 crore and tier 4 would have UCBs with deposits above Rs 10,000 crore.

The revised framework is expected to give more focus on the larger UCBs that require intensive monitoring by optimal utilisation of supervisory resources, RBI said in a statement.

Tier 1 UCBs have been excluded from the PCA framework for the present. However, they shall continue to be subjected to enhanced monitoring under the existing supervisory framework, RBI said.

The regulator said a bank will generally be placed under PCA Framework based on the Reported and Audited Annual Financial Results and the ongoing Supervisory Assessment. However, RBI may impose PCA on any bank during the course of a year in case the circumstances warrant.

RBI said the revised framework seeks to provide flexibility to design entity specific supervisory action plans based on the assessment of risks on a case-by-case basis.

The hard-coded limit of Rs 25,000 for restrictions on capital expenditure by UCBs under SAF has been dispensed with.

The revised framework enables the Supervisors to decide the limit depending upon their assessment of each entity.

The exit from PCA and withdrawal of Restrictions under PCA will be considered if no breaches in risk thresholds in any parameters are observed as per four successive quarterly financial statements.  

Lending help

> Framework for the improvement of weak UCBs

> Applicable to UCBs with deposits above Rs 100 cr

Norms for invocation of the framework 

> Capital adequacy ratio up to 250 bps below the required level

> Net NPAs above 6% but below 9%

> Loss incurred for two consecutive years