RBI introduced the PCA framework to improve the financial conditions of UCBs

Current Context: On 26th July 2024, The Reserve Bank of India (RBI) released a Prompt Corrective Action (PCA) Framework for Urban Cooperative Banks (UCBs), which will be effective from April 1, 2025.

• Here are the key points:
• Objective: The PCA Framework aims to enable timely supervisory intervention to restore financial health in UCBs.
• Coverage: It applies to all UCBs in Tier 2, Tier 3, and Tier 4 categories (except UCBs under All Inclusive Directions). Tier 1 UCBs, though not covered under PCA as of now, will be subject to enhanced monitoring.
• Indicators: The framework monitors Capital Adequacy Ratio (CAR), Net NPA Ratio, and net profit.
• Risk Thresholds: Breach of risk thresholds (e.g., CAR below required levels, net NPAs above 6% but below 9%, consecutive losses) may result in invoking PCA.
• Supervisory Actions: The PCA Framework enables timely corrective measures to restore UCBs’ financial health.

Question:

1 Which categories of UCBs are covered under the Prompt Corrective Action (PCA) Framework?

• A) Tier 1 and Tier 2 UCBs
• B) Tier 2, Tier 3, and Tier 4 UCBs
• C) Only Tier 3 UCBs
• D) All UCBs without any exceptions

Answer: B) It applies to all UCBs in Tier 2, Tier 3, and Tier 4 categories (except UCBs under All Inclusive Directions). Tier 1 UCBs, though not covered under PCA as of now, will be subject to enhanced monitoring.