Prompt Corrective Action (PCA) is specified by RBI as regulatory trigger point for commercial Banks. It is not applicable for co-operative banks, Non-Banking Financial Companies (NBFC) and Finance Management Institution (FMIs). RBI has introduced it to assess, monitor, control and take corrective actions on banks which are weak and non performing.
The main purpose for introducing PCA is to avoid bank failures as they can effect the economy. RBI has set three parameter viz. CRAR, NPA and ROA. Based on each parameter, the banks have to follow a mandatory action plan. Three different risk thresholds have been defined for corrective actions based on different value range of above mentioned three parameters.
Mandatory Actions under Risk Thresholds:
Risk Threshold 1 - Restrictions on dividend distribution, remittance of profits.
Risk Threshold 2- In addition to mandatory actions of threshold 1, restriction on branch expansion (domestic and overseas both).
Risk Threshold 3 - In addition to mandatory actions of Risk Threshold 1 and 2, restriction on management compensation and directors' fees.
PCA Indicators And Risk Threshold
1. CRAR or CET 1 Ratio -
a. CRAR is the minimum regulatory prescription for capital to risk asset ratio and applicable capital conservation buffer (CCB). At Present, 10.875% is the minimum CRAR prescription by RBI.
Criteria for Risk Thresholds
Risk Threshold 1 : <10.875% but <8.375%
Risk Threshold 2 : >8.375% but <6.875%
b. CET 1 ratio is the pre-specified trigger of Common Equity Tier 1 and applicable capital conservation buffer (CCB). At Present, 7.375% is the minimum prescription of CET 1 ratio by RBI
Criteria for Risk Thresholds
Risk Threshold 1 : <7.375% but >=5.75%
Risk Threshold 2 : <5.75% but >=4.25%
Risk Threshold 3 : <4.25%
2. Asset Quality - NPA (Non-Performing Asset Ratio) is the indicator to measure Asset Quality.
Criteria for Risk Thresholds
Risk Threshold 1 : >=6.0% but <9%
Risk Threshold 2 : >9% but <12%
Risk Threshold 3 : >12%
3. Profitability - Return On Assets(ROA) is the indicator of profitability that has been taken one of the parameter under PCA.
Criteria for Risk Thresholds
Risk Threshold 1 : Negative ROA for two consecutive years
Risk Threshold 2 : Negative ROA for three consecutive years
Risk Threshold 3 : Negative ROA for four consecutive years
List of Banks Which Are Under PCA (As on 17 Apr 2018)
1. IDBI Bank,
2. Indian Overseas Bank
3. Central Bank of India
4. Bank of Maharashtra
5. Dena Bank
6. United Bank of India
7. Corporation Bank
8. Oriental Bank of Commerce
9. Bank of India
10. UCO Bank
11. Allahabad Bank.
Comments
Post a Comment