PCA full form in Banking is Prompt Corrective Action. It is a method enforced by RBI on financial institutions indicating signs of monetary stress. Simply put, the term is used to show banks are considered unsafe if they are unable to fulfill the standards and regulations on specific monetary parameters.
To ascertain whether banks are under the PCA framework, RBI considers 4 factors including asset quality, profitability, debt level, and capital ratio. Each of these elements is based on actions based on the threshold level.
PCA benefits banks in a number of ways, including
- PCA is to correct the mistakes of the bank before it leads to an emergency.
- The PCA framework of RBI is designed to improve the financial performance of a bank. These include taking counteractive measures against the RBI.
- PCA has not been able to enter into a new line of enterprise thereby improving its core financial position.
- In some cases, RBI may choose non-compliant banks for them.
What Else Should You Know About PCA?
Prompt Corrective Action is an outline established by the RBI (Reserve Bank of India) in the year 2022. It is a structured early interference apparatus for financial institutions with poor financial records due to poor asset quality or loss of profitability.