IDBI Bank out of “PCA framework”

What is the News?

Reserve Bank of India(RBI) has taken out IDBI Bank from the prompt corrective action(PCA) framework. But it is still subject to certain conditions and continuous monitoring.

What is Prompt corrective action(PCA) Framework?

• PCA is an RBI framework. Banks with weak financial metrics are put under the PCA framework by the Reserve Bank of India(RBI).
• Aim: It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.

When was the PCA framework introduced?

• The RBI introduced the PCA framework in 2002. It is a structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.

When does RBI invoke PCA?

• The PCA framework is invoked when banks breach any of the three key regulatory trigger points namely
  1. Capital to risk-weighted assets ratio
  2. Net non-performing assets(NPA) and
  3. Return on assets(RoA).

What are the restrictions on Banks when PCA is invoked? There are two types of restrictions:

Mandatory Restrictions: It includes:

• • Restrictions on Dividends
  • Restrictions on Branch expansion
  • Restrictions on Management compensation among others.

Discretionary Restrictions: It includes

• • Curbs on lending and deposits.
  • Recommending the bank owner to bring new management and board among others.

Source: Indian Express