Prompt corrective action not to constrain banks normal operation: RBI

The prompt corrective action framework is intended to encourage banks to eschew certain riskier activities and focus on conserving capital so that their balance sheets can become stronger.

A man shows Rs 2000 notes in front of the Reserve Bank of India (RBI) headquarter. Photo: IANS

The Reserve Bank of India (RBI) on Friday clarified that the prompt corrective action (PCA) framework is not intended to stop banks normal operations.

“The PCA framework is not intended to constrain normal operations of the banks for the general public,” said the central bank.

The clarification comes in the wake of some misinformed communication circulated in some section of media including social media.

RBI statement said it has come across some misinformed communication circulating in some section of media including social media, about closure of some Public Sector Banks in the wake of their being placed under the Prompt Corrective Action (PCA) framework.

RBI further clarified that under its supervisory framework, uses various measures/tools to maintain sound financial health of banks.

“PCA objective is to facilitate the banks to take corrective measures including those prescribed by the Reserve Bank, in a timely manner, in order to restore their financial health,” it added.

Also, it provides an opportunity to the Reserve Bank to pay focussed attention on such banks by engaging with the management more closely in those areas, as per the central bank.

PCA framework is one such supervisory tool by RBI, which involves monitoring of certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to capital, asset quality etc. are breached.

Earlier on December 20, RBI initiated PCA against Bank of India (BOI) for mounting of bad loans placing various restriction on the bank including issuance of fresh loans and dividend distribution.

The BoI would not be alone to face the RBI action as there are nine other such banks, mostly state-owned banks, for having higher stressed assets. They include IDBI Bank, Indian Overseas Bank, Bank of Maharashtra, United Bank of India, Dena Bank, Corporation Bank, UCO Bank, Central Bank of India and Oriental Bank of Commerce.

Last time in the month of June 2017, RBI gave similar clarifications while initiating banks under the PCA framework.