BUSINESS
The Reserve Bank of India (RBI) on Friday launched the prompt corrective action (PCA) framework for urban co-operative banks (UCBs), on the lines of PCA norms for scheduled commercial banks and non-banking finance companies. The framework will come into effect from April 1, 2025. The banking regulator places regulated entities under PCA when they fail to meet the minimum regulatory requirement on capital adequacy ratio (CRAR), non-performing assets (NPAs) and profitability. Once placed under the PCA, the entity faces severe business restrictions which are lifted only when it meets the necessary regulatory requirements. Under the PCA framework, co-operative banks with more than 6-12% net NPA ratio can be placed under restriction. UCBs which have been posting net losses for two consecutive years can also be placed under the framework. UCBs from all tiers, except tier-I entities with up to Rs 100 crore in deposits which are posting 2.5%-4% lower CRAR than the minimum requirement of 9%, can be placed under the PCA norms. The regulator has provided tier-2 to tier-4 UCBs a glide path for achieving the regulatory minimum CRAR of 12% by March 31, 2026. “A bank will generally be placed under PCA framework based on the reported/audited annual financial results and/or the ongoing supervisory assessment made by the RBI. However, the RBI may impose PCA on any bank during the course of a year (including migration from one threshold to another) in case the circumstances so warrant,” the regulator said. If a UCB is placed under the PCA framework, the entity will have to comply with minimum regulatory norms on CRAR, net NPA and profitability. Business restrictions Once a UCB is placed under the framework, the RBI will impose stringent business restrictions on the bank including barring it from raising capital from existing members and issuing equity or other capital instruments. The RBI will also hold UCBs from giving dividends to shareholders or making other donations. Appropriate restrictions on capital expenditure, other than for technology upgrades, will also be imposed. The RBI can also disallow the UCB to expand presence via branches and prohibit it from expanding total size of the deposit base. Discretionary actions, including conducting special audits, governance checks, HR and cancellation of banking licence, could be taken by the RBI once a UCB is placed under the PCA framework. None
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