Reserve Bank of India (RBI) recently removed IDBI bank out of its Prompt Corrective Action (PCA) framework.
· The move will pave way for privatization of the bank.
· However the government has already privatised IDBI Bank by selling its majority stake in the lender to LIC in 2019.
Prompt Corrective Action (PCA)
PCA is a regulatory framework under which weak banks are placed for oversight by RBI.
· Placing banks under this framework depends on the performance of the bank in three parameters. · The parameters are capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA).
· RBI initiates PCA when CAR goes below 9% or NPA rises above 10%.
· When RBI initiates PCA against a bank, it puts restrictions on fresh loans and dividend distribution and brings in stricter norms for lending, branch expansion, management change and asset reduction depending on the financial health of the bank.
· The PCA framework is applicable only to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs) and FMIs.
