Banking Awareness

Prompt Corrective Action

 Banking Awareness
Prompt Corrective Action

Prompt Corrective Action

Introduced in:2002 by Reserve Bank of India

Its main ATM is to check the problem of Non- Performing Assets in the Indian banking

sector. When the NPAs of the banks soar beyond the regulatory tolerance levels, then the

banks are under the PCA framework.

Causes of PCA:

1. Capital Adequacy Ratio (CAR)

2. Asset quality

3. Profitability

4. Total debt level or leverage, which measures the financial risk of the bank.

Impact of PCA:

1. Impacts on the Rating of the Banks

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 Banking Awareness
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2. It can Accelerate the loss of Market share.

3. Hindrance to Economic Growth

PCA Restrictions:

1. Banks should not expand their Branches.

2. Banks are not allowed to renew or access costly deposits.

3. Banks Should not Grant Loans

4. Banks are not allowed to enter a new business.

5. Should not Hike the Salary of the Employees

6. Impose restrictions on the bank on borrowings from the interbank market.

Recovery of NPA/ PCA:

1. Loan Restructuring Schemes

2. Amendment of Banking Law to give RBI more powers.

3. Enabling foreign portfolio investors (FPIs) and alternative investment funds (AIFs) to

purchase NPAs.

4. Carrying out One Time Settlement (OTS) to recover Bad Loans

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