Skip to main content

When are UCBs placed under PCA? What are its implications?

Reserve Bank of India (RBI) has issued Prompt Corrective Action (PCA) framework for Primary (Urban) Co-operative Banks (UCBs).

What is Prompt Corrective Action (PCA) framework?

Prompt Corrective Action (PCA) framework enables supervisory intervention at an appropriate time and requires the Primary (Urban) Co-operative Banks (UCBs) to initiate and implement remedial measures in a timely manner, to restore their financial health. 

To which UCBs is the PCA framework applicable?

The PCA framework shall be applicable to all UCBs under Tier 2, Tier 3 and Tier 4 categories except UCBs under All Inclusive Directions (AID). 

The PCA framework will replace the existing Supervisory Action Framework (SAF) and will be effective from April 01, 2025.

How are UCBs categorized?

UCBs have been categorized into –

  • Tier 1 - All unit UCBs and salary earners’ UCBs (irrespective of deposit size), and all other UCBs having deposits up to ₹100 crore
  • Tier 2 - UCBs with deposits more than ₹100 crore and up to ₹1,000 crore
  • Tier 3 - UCBs with deposits more than ₹1,000 crore and up to ₹10,000 crore
  • Tier 4 - UCBs with deposits more than ₹10,000 crore

The deposits are reckoned as per audited balance sheet as on 31st March of the preceding financial year.

What parameters are considered under PCA framework?

For the purpose of PCA framework, the financial health of the bank is evaluated in terms of following 3 parameters –

  • Capital – indicated by CRAR
  • Asset Quality – indicated by Net NPA Ratio
  • Profitability – indicated by Net Profit

How are the indicators measured?

  • Capital to Risk-Weighted Asset Ratio (CRAR) – the percentage of Capital to total risk-weighted assets.
  • Net Non-Performing Assets (NNPA) ratio – the percentage of net NPAs to net advances.

What are the thresholds for invocation of PCA?

The breach of risk thresholds for any of the indicators of capital, asset quality or profitability may result in invocation of PCA framework.

Risk thresholds for Capital

Parameter Capital
Indicator CRAR – minimum regulatory requirement, as applicable (For Tier 2 to 4 UCBs as per the glide path provided for achieving the regulatory minimum CRAR of 12% by March 31, 2026)
Risk Threshold 1 Up to 250 bps below the Indicator prescribed
Risk Threshold 2 More than 250 bps but not exceeding 400 bps below the Indicator prescribed
Risk Threshold 3 In excess of 400 bps below the Indicator prescribed

Risk thresholds for Asset Quality

Parameter Asset Quality
Indicator Net NPA ratio
Risk Threshold 1 ≥ 6.0% but < 9.0%
Risk Threshold 2 ≥ 9.0% but < 12.0%
Risk Threshold 3 ≥ 12.0%

Risk thresholds for Profitability

Parameter Profitability
Indicator Net profit
Risk Threshold 1 Incurred losses during 2 consecutive years
Risk Threshold 2 -
Risk Threshold 3 -

What is the data point for assessing the risk thresholds?

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 RBI. However, 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. 

What mandatory restrictions are imposed on banks placed under PCA?

When a bank is placed under PCA, one or more of the following mandatory corrective actions may be prescribed for banks –

Specifications Mandatory actions
Risk Threshold 1 Bank to raise capital either from existing members or by issuance of equity and other permissible capital instruments
Restriction on declaration / payment of dividend / donation
Appropriate restrictions on capital expenditure, other than for technological upgradation
Risk Threshold 2 In addition to mandatory actions of Threshold 1 – Restriction on branch expansion
Risk Threshold 3 In addition to mandatory actions of Threshold 1 and 2 – Appropriate restrictions / prohibition on expansion of total size of the deposits

What discretionary actions can be taken for banks placed under PCA?

When a bank is placed under PCA, one or more of the following discretionary corrective actions may be prescribed for banks –

  1. Special Supervisory Actions
  2. Strategy related
  3. Governance related
  4. Capital related
  5. Credit risk related
  6. Market risk related
  7. HR related
  8. Profitability related
  9. Operations / Business related
  10. Imposition of All Inclusive Directions / Cancellation of Banking License
  11. Any other

When can banks exit PCA restrictions?

Taking a bank out of PCA framework and / or withdrawal of restrictions imposed under the PCA framework can be considered –

  • If no breaches are observed in risk thresholds of any of the parameters as per the four continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI); and 
  • Based on Supervisory comfort of RBI, including an assessment on sustainable improvement in key financials of the bank.

How is PCA different from existing SAF?

  • The PCA framework is largely principle-based with fewer number of parameters as compared to the SAF.
  • The revised framework seeks to provide flexibility to design entity specific supervisory action plans based on the assessment of risks on a case-by-case basis.
  • The hard-coded limit of ₹25,000/- for restrictions on capital expenditure by UCBs under SAF has been dispensed with. The revised framework enables the Supervisors to decide the limit depending upon their assessment of each entity.
  • Tier 1 UCBs have been excluded from the PCA framework for the present. However, they shall continue to be subjected to enhanced monitoring under the extant supervisory framework.
  • The revised framework is expected to give more focus on the larger UCBs.


References

Reserve Bank of India. (2022, December 01). 'Revised Regulatory Framework - Categorization of Urban Co-operative Banks (UCBs) for Regulatory Purposes'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12416&Mode=0

Reserve Bank of India. (2024, July 26). 'Prompt Corrective Action (PCA) Framework for Primary (Urban) Co-operative Banks (UCBs)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12711&Mode=0

Reserve Bank of India. (2024, July 26). 'RBI issues Prompt Corrective Action (PCA) Framework for Primary (Urban) Co-operative Banks'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=58375


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Digital Payments – E-mandate Framework 2026

Reserve Bank of India (RBI) has issued e-mandate framework for digital payments. What is an e-mandate?  A mandate is a standard instruction that a customer provides to his / her issuing bank and other institutions allowing them to automatically debit the mentioned amount from his / her bank account. e-mandate is the electronic version of it. To whom shall the framework be applicable? The framework shall be applicable to Payment System Providers and Payment System Participants. To which transactions shall the framework be applicable? The framework shall be applicable to processing of recurring transactions, domestic or cross-border, using cards / Prepaid Payment Instrument (PPI) / Unified Payments Interface (UPI). What are the guidelines for registration and revocation of e-mandate? A customer desirous of opting for e-mandate facility shall undertake a one-time registration process. The mandate shall be registered only after successful validation of additional factor of authenticati...
Post a Comment
Read more

Guidelines to facilitate faster cross-border inward payments

Reserve Bank of India (RBI) has issued guidelines to facilitate faster cross-border inward payments. What is the rationale behind the guidelines? The RBI’s Payments Vision 2025 aims to bring efficiency in the cross-border payments aligning with the G20 roadmap for cross-border payments that has set targets for achieving cheaper, faster, more transparent, and more accessible cross-border payments. One of the challenges with speed of cross-border payments is experienced at the beneficiary leg i.e., the time taken from receipt of the payment at the beneficiary bank till credit to the beneficiary account. What are the guidelines to facilitate faster cross-border inward payments? Banks shall inform their customer of the receipt of cross-border inward transactions immediately on receipt of inward message. Messages received after close of operating hours of banks shall be informed to customer immediately at the start of the next business day. Banks shall undertake reconciliation and confirmat...
1 comment
Read more

Utkarsh 2029

Reserve Bank of India (RBI) has published its medium-term strategy framework – Utkarsh 2029, for the period April 2026 to March 2029. Utkarsh RBI had first formulated its medium-term strategy framework, viz. ‘Utkarsh 2022’ for the period 2019-2022 in July 2019, replacing its annual action plans as the latter spanned over a short period, insufficient to pursue strategic objectives.  The strategic framework contained, inter alia, RBI’s Mission, Core Purpose, Values and Vision Statements, reiterating RBI’s commitment to the Nation. It became a medium-term strategy document guiding RBI’s progress towards realisation of the identified milestones. The subsequent strategy framework, i.e., ‘Utkarsh 2.0’, spanned the period 2023-25. Utkarsh 2029  Utkarsh 2029 is the medium-term strategy framework for the period April 2026 to March 2029. Utkarsh 2029 has a 3-layered structure consisting of strategy pillars guided by the vision and values of RBI. Vision of Utkarsh 2029 – Continue excelle...
Post a Comment
Read more

Credit Information Reporting

Reserve Bank of India (RBI) had issued directions on credit information reporting by the regulated entities. What are Credit Information Companies (CICs)? Credit Information Companies (CICs) mean companies that have been granted a certificate of registration by RBI under section 5 of the Credit Information Companies (Regulations) Act, 2005 (CICRA).  The following CICs are registered with RBI – CRIF High Mark Credit Information Services Private Limited Equifax Credit Information Services Private Limited Experian Credit Information Company of India Private Limited TransUnion CIBIL Limited What are Credit Institutions (CIs)? Credit Institutions (CIs) mean the following institutions – Commercial Banks  Small Finance Banks (SFBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) Central Co-operative Banks (CCBs) All India Financial Institutions (AIFIs) regulated by RBI – Export I...
Post a Comment
Read more

Guidelines on Money Changing Activities (Updated as on April 02, 2026)

Reserve Bank of India (RBI) has updated the guidelines on money changing activities. Who is Authorised Person? Authorised Person means an authorised dealer, money changer, off-shore banking unit or any other person authorised under section 10(1) of Foreign Exchange Management Act, 1999 (FEMA) to deal in foreign exchange or foreign securities. What are the categories of Authorised Persons? Authorised Dealer (AD) Category-I – entities which are authorised by RBI to carry out all permissible current and capital account transactions. Authorised Dealer (AD) Category-II – entities which are authorised by RBI to carry out specified non-trade related current account transactions, all the activities permitted to Full Fledged Money Changers (FFMC) and any other activity as decided by RBI, and include (i) Upgraded FFMCs; (ii) Select Regional Rural Banks (RRBs); (iii) Select Urban Cooperative Banks (UCBs); and (iv) Other entities. Authorised Dealer (AD) Category-III – entities which are authorised...
Post a Comment
Read more