The Reserve Bank of India (RBI) has issued a prompt corrective action (PCA) framework for primary (urban) co-operative banks with a view to giving more focus on larger UCBs that require more intensive monitoring by optimal utilisation of supervisory resources. The PCA framework will replace the supervisory action framework (SAF) which was established as an early intervention tool to bring improvements in weak UCBs.
In a circular on Friday, the RBI said the PCA framework had been suitably harmonised with similar frameworks applicable to scheduled commercial banks and non-banking financial companies, with suitable modifications keeping in mind the underlying principle of proportionality.
“The PCA framework is largely principle-based with fewer number of parameters as compared to the SAF, without any dilution in the supervisory rigour,” the RBI said. “The revised framework seeks to provide flexibility to design entity specific supervisory action plans based on the assessment of risks on a case-by-case basis,” it added.
In the revised framework, the hard-coded limit of ₹25,000 for restrictions on capital expenditure by UCBs under SAF has been dispensed with. “The revised framework enables the supervisors to decide the limit depending upon their assessment of each entity,” the banking regulator said.
The PCA framework has been made applicable to all UCBs in Tier 2, Tier 3 and Tier 4 categories, except UCBs under All Inclusive Directions (AID). Tier 1 UCBs have been excluded from the PCA framework for the present. However, they will continue to be subjected to enhanced monitoring under the extant supervisory framework.
