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With reference to the Prompt Corrective Action (PCA), consider the following statements:
  1. It is imposed when a bank fulfils certain regulatory thresholds.
  2. The framework is applicable on all banks operating in India, including the foreign banks.
  3. The revised framework has removed leverage as an indicator.
Which of the statements given above is/are correct?
  • a)
    1 only
  • b)
    2 only
  • c)
    1 and 3 only
  • d)
    2 and 3 only
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
With reference to the Prompt Corrective Action (PCA), consider the fol...
The Prompt Corrective Action (PCA) Framework:
  • The PCA norm is a supervisory tool and is imposed when a bank breaches certain regulatory thresholds. ‘Capital’, ‘Asset Quality’ and ‘Leverage’ are the 3 parameters which will be the key areas for monitoring in the revised framework and there are three risk thresholds, from 1 to 3, in the increasing order of severity. The revised framework has removed return on assets as an indicator.
  • Applicability: The PCA Framework would apply to all banks operating in India, including the foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators.1 However, the Payments Banks and the Small Finance Bank (SFBs) have been removed from the list of lenders where the PCA can be initiated.
  • Withdrawal of Restrictions under the PCA: If no breaches in risk thresholds in any of the parameters are observed in four continuous quarterly financial statements, based on the supervisory comfort of the RBI. This also includes an assessment on sustainability of profitability of the bank.
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With reference to the Prompt Corrective Action (PCA), consider the following statements: It is imposed when a bank fulfils certain regulatory thresholds. The framework is applicable on all banks operating in India, including the foreign banks. The revised framework has removed leverage as an indicator.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)1 and 3 onlyd)2 and 3 onlyCorrect answer is option 'B'. Can you explain this answer?
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