Prompt Corrective Action Essay : Prompt Corrective Action is a framework initiated by the RBI to keep certain bank under the control and checks of the RBI to ensure that these banks don’t go financial debt or face high financial risks.
Several Non banking financial companies also have been put under the PCA by the RBI. The RBI first introduced the Prompt Corrective Action in the year 2002 on scheduled commercial banks, which is been reviewed in timely manner. The RBI has introduced certain threshold for implementing PCA on banks and NBFCs. The threshold includes, Restriction on dividend distribution, promoters and owners to bring in additional capital in case of foreign banks, restrictions on expansion at domestic and international level.
Several banks lend huge loans to corporates and other business thereby increasing the financial risk of these loans being repaid by such corporates and businesses.When these loans are left unpaid for several years bank and other non banking financial companies face huge financial debts and thereby being put under RBI for PCA.
The RBI involves itself with the banks board of management by reviewing its ability to revive the banks financial position through several methods. Audits and various other steps are taking by the RBI to raise additional capital for the banks and NBFCs to step up their financial position. RBI also ensures that the loans taken by the corporates and businesses which have been left unpaid, are repaid somehow either in parts or in full through auction or any mortgaged property left by these corporates or businesses.
Most of the banks were able to revive their capital and financial strength due to this corrective measures taken up by the RBI. However even after the PCAs been undertaken for such banks and non banking financial companies they still remain under the scanner of RBI and are being reviewed about their financial position, either quarterly, monthly or yearly.
As of today there are 12 public sector banks which are under the PCA of RBI since 2021.The Bandhan bank has been recently appointed as the agency bank for RBI to facilitate PCA.
The PCA will ensure that banks don’t go into financial debts, this will also boost in building the economy and the nation. This will increase the lending capacity of banks and enable quick recoveries of loans too.
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