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RBI's Revised PCA Framework for Ailing Banks


Affiliations
1 Institute of Management Studies, Kuvempu University, Jnana Sahyadri, Shankaraghatta 577 451 (Karnataka), India
 

Banking and financial institutions in the country play multiple and pivotal roles, and contribute substantiallyfor the overall development of the economy. In spite of this pivotal role that these banking institutions are playing, their financial performance is not satisfactory. One of the indicators of this not-so satisfactor y performance is the mounting non-performing loans (NPLs). This is adversely affecting their performance from the points of view of other indicators such as capital adequacy, return on assets, etc. This NPL has, therefore, become a big challenge for the bankers and also to the government. To resolve this problem of mounting NPLs of banks, the Reserve Bank of India (RBI) and the Government of India (GOI) have taken many a number of steps. However, these measures have not yielded the desired result and the problem remain unresolved. Hence, the apex bank of the country revised its earlier scheme viz., Prompt Corrective Action (PCA) Framework of 2002 thoroughly and issued the Revised PCA Framework in April 2017 identifying the key per formance areas, parameters to measure the performance of banks in each of these key areas, Risk Thresholds for each performance indicator and also the corrective actions required to be taken by the banks if their performance breach the Risk Thresholds. In this background, this paper makes an attempt examine the problem together with other related issues followed by an analysis of different aspects of Revised PCA Framework, 2017.

Keywords

Asset Quality, CAR, CET - 1 Ratio, CRAR, Net NPA Ratio, Prompt Corrective Action, Return on Assets Ratio, Risk Thresholds, Tier-I and II Capital.
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  • RBI's Revised PCA Framework for Ailing Banks

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Authors

Inchara P. M. Gowda
Institute of Management Studies, Kuvempu University, Jnana Sahyadri, Shankaraghatta 577 451 (Karnataka), India
K. R. Manjunatha
Institute of Management Studies, Kuvempu University, Jnana Sahyadri, Shankaraghatta 577 451 (Karnataka), India

Abstract


Banking and financial institutions in the country play multiple and pivotal roles, and contribute substantiallyfor the overall development of the economy. In spite of this pivotal role that these banking institutions are playing, their financial performance is not satisfactory. One of the indicators of this not-so satisfactor y performance is the mounting non-performing loans (NPLs). This is adversely affecting their performance from the points of view of other indicators such as capital adequacy, return on assets, etc. This NPL has, therefore, become a big challenge for the bankers and also to the government. To resolve this problem of mounting NPLs of banks, the Reserve Bank of India (RBI) and the Government of India (GOI) have taken many a number of steps. However, these measures have not yielded the desired result and the problem remain unresolved. Hence, the apex bank of the country revised its earlier scheme viz., Prompt Corrective Action (PCA) Framework of 2002 thoroughly and issued the Revised PCA Framework in April 2017 identifying the key per formance areas, parameters to measure the performance of banks in each of these key areas, Risk Thresholds for each performance indicator and also the corrective actions required to be taken by the banks if their performance breach the Risk Thresholds. In this background, this paper makes an attempt examine the problem together with other related issues followed by an analysis of different aspects of Revised PCA Framework, 2017.

Keywords


Asset Quality, CAR, CET - 1 Ratio, CRAR, Net NPA Ratio, Prompt Corrective Action, Return on Assets Ratio, Risk Thresholds, Tier-I and II Capital.

References





DOI: https://doi.org/10.23874/amber%2F2017%2Fv8%2Fi1%2F158367