The Reserve Bank of India (RBI) has announced that around 500 weak Urban Co-operative Banks (UCBs), currently under the Supervisory Action Framework (SAF), will transition to the Prompt Corrective Action (PCA) framework starting April 1, 2025. This transition aims to strengthen financial discipline and ensure timely corrective action for financially unsound UCBs.
About PCA Framework for UCBs
Introduced by RBI:
- PCA for Scheduled Commercial Banks (SCBs) in 2002.
- PCA for Urban Co-operative Banks (UCBs) in July 2024 (replacing SAF).
Objective:
- To enable supervisory intervention at an appropriate time and require the UCBs to initiate and implement remedial measures in a timely manner, to restore their financial health.
Applicability:
- Applies to all UCBs – Tier 2, Tier 3, and Tier 4 UCBs.
Monitoring Parameters:
- Capital, Asset Quality, and Profitability are the key areas for monitoring.
Difference Between SCBs and UCBs under PCA:
- SCBs: Monitored based on Capital, Asset Quality, and Leverage.
- UCBs: Monitored based on Capital, Asset Quality, and Profitability.
Significance of Transition from SAF to PCA
- SAF (introduced in 2012) required self-corrective actions by UCB management before RBI’s supervisory intervention.
- PCA framework ensures a more structured and timely approach to financial correction.
- RBI retains the authority to take additional actions beyond the PCA framework if required.
- This transition is expected to strengthen financial discipline in the Urban Co-operative Banking sector, ensuring greater stability and depositor confidence.