The parameters that invites corrective action from RBI are:
- Capital to Risk weighted Asset ratio (CRAR)
- Net Non-performing Asset (NPA)
- Return on Asset (ROA)
- Leverage Ratio
In this framework certain restriction are take place such as halting branch expansion and stop dividend payment, cap a bank’s landing limit.
2. Discretionary (restrictions on lending and deposit)
Two types of restriction are there
1. Mandatory ( Restriction on dividend branch expansion, directors compensation)2. Discretionary (restrictions on lending and deposit)
The salient feature of revised PCA framework for Banks:
- For monitoring in the revised framework, the key areas are capital, asset quality and profitability.
- The indicator, which tracked the key areas, would be CRAR/ common equity Tier 1 ratio, net NPA ratio and return on assets.
- Leverage would be monitored.
- It applied for all banks including small banks and foreign banks operating in India.
- PCA framework also based on the audited annual financial results and the supervisory Assessment made by RBI.
Strategy related action:
- Activate the Recovery plan
- Undertake a detailed review of business model in terms of sustainability, profitability, viability and projections.
- Review medium term business plan, scope for enhancement.
- Identify the targets and set milestone for progress and achievements.