RBI issues PCA framework for primary urban co-operative banks

Reserve Bank of India

The banking regulator has issued a framework of Prompt Corrective Action (PCA) to enhance oversight of Urban Co-operative Banks (UCBs).

The provisions of the PCA Framework for UCBs will be effective from April 1, 2025 and replace the earlier Supervisory Action Framework (SAF).

The framework has been harmonised with similar ones applicable for Scheduled Commercial Banks and Non-Banking Financial Companies, suitably modified to the principle of proportionality, Reserve Bank of India (RBI) said.

What is PCA?

The Prompt Corrective Action framework is a mechanism to through which banks with poorer financial metrics are put under watch.

The PCA framework is largely principle-based with fewer parameters as compared to the SAF, but it does not dilute the supervisory rigour, RBI added. The revised framework provides flexibility to design entity-specific supervisory action plans based on the assessment of risks.

Further, the limit of Rs 25,000 on capital expenditure by UCBs while under Supervisory Action Framework (SAF) has been dispensed with. The revised framework enables the supervisors to decide the limit, depending upon their assessment of each entity, RBI said.

The PCA Framework has been made applicable to all UCBs in Tier 2, 3 and 4, except those under All Inclusive Directions (AID), release added.

Under all-inclusive directions, the RBI restricts the bank from discharging its liabilities except as permitted by the central bank.

The central bank has excluded the Tier 1 UCBs from the PCA framework for now, however, they shall continue to be subjected to enhanced monitoring under the already existing supervisory framework.

The revised framework is expected to focus more on the larger UCBs, requiring intensive monitoring through supervisory resources, RBI said.