GS 3: Economy

Why in News?

The Reserve Bank of India has taken off Allahabad Bank and Corporation Bank, from the public sector, and Dhanlaxmi Bank from the private sector out of prompt and corrective action (PCA) framework.

Highlights:

• The banks have shored up their capital funds and also increased their loan loss provision to ensure that the PCA parameters were complied with.
• Net NPA and leverage ratios are no longer in breach of the PCA thresholds.
• According to norms, PCA framework gets triggered when a bank breaches one of the three risk thresholds. Crossing 6% net NPA is one of them.
• RBI will continuously monitor the performance of these banks under various parameters.

PCA framework:

• RBI has issued a policy action guideline (first in December 2002 and revised in 2014 and 2017) in the form of Prompt Corrective Action (PCA) Framework if a commercial bank’s financial condition worsens below a mark.
• The PCA framework specifies the trigger points or the level in which the RBI will intervene with corrective action.
• This trigger points are expressed in terms of parameters for the banks.

The parameters of PCA:
 Capital to Risk weighted Asset Ratio (CRAR)
 Net Non-Performing Assets (NPA)
 Return on Assets (RoA)