Question

If financial condition of a bank deteriorates, RBI will take corrective action. From the parameters mentioned below which is NOT considered for RBI’s Prompt Corrective Action (PCA) Framework?

A Capital Adequacy Correct Answer Incorrect Answer
B Asset Quality Correct Answer Incorrect Answer
C Profitability Correct Answer Incorrect Answer
D Leverage Correct Answer Incorrect Answer
E Liquidity Correct Answer Incorrect Answer

Solution

RBI has issued a policy action guideline (first in May 2014 and revised effective from April 1, 2017) in the form of Prompt Corrective Action (PCA) Framework if a commercial bank’s financial condition worsens below a mark. The parameters that invite corrective action from the central bank are: · 1. Capital to Risk weighted Asset Ratio (CRAR) · 2. Net Non-Performing Assets (NPA)- Asset Quality · 3. Return on Assets (RoA)- Profitability · 4. Leverage Ratio When these parameters reach the set trigger points for a bank (like CRAR of 9%, 6%, 3%), the RBI will initiate certain actions for the bank.

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