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

Published on July 27, 2024
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.
RBI introduced the PCA framework to improve the financial conditions of UCBs
  • 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
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