RBI Releases New PCA Framework for Urban Cooperative Banks

Source- This post on the RBI Releases New PCA Framework for Urban Cooperative Banks has been created based on the article “Reserve Bank of India releases PCA framework for urban cooperative banks” published in “Business Standard” on 27 July 2024.

The Reserve Bank of India (RBI) has introduced a new Prompt Corrective Action (PCA) framework aimed at improving weak Urban Cooperative Banks (UCBs).

This framework will replace the existing Supervisory Action Framework (SAF) and will be effective from April 1, 2025.

About the framework

1. The PCA framework is designed to ensure timely intervention and corrective measures for weak UCBs.

2.  It focuses more on larger UCBs that require intensive monitoring, thereby optimizing supervisory resources.

3. Applicability: The new PCA framework will apply to UCBs with deposits exceeding Rs 100 crore. UCBs are categorized into four tiers based on their deposit sizes:

Note:  Currently, Tier 1 UCBs are excluded from the PCA framework but will continue to be under enhanced monitoring.

4. Criteria for Invoking PCA:

i)  If the CAR falls up to 250 basis points below the required level.

ii) If net NPAs are above 6% but below 9%.

iii) If a bank incurs losses for two consecutive years.

5. Process:

i) The PCA framework will be invoked based on the reported and audited annual financial results and ongoing supervisory assessments by the RBI.

ii) The RBI may impose PCA at any time during the year if circumstances warrant immediate action.

6.  The revised framework allows for entity-specific supervisory action plans based on risk assessments.

7.  The hard-coded limit of Rs 25,000 for restrictions on capital expenditure under SAF has been removed, giving supervisors the flexibility to set limits based on their assessment of each entity.

8.  UCBs can exit the PCA framework if no breaches in risk thresholds are observed across four successive quarterly financial statements.

UPSC Syllabus: Indian Economy