The Reserve has revised the prompt corrective action plans for vulnerable banks, setting criteria for exit from the framework when the bank’s financial metrics improve. It has also removed the profitability parameter to enforce regulatory action.

The revised framework will be effective from January next year. Existing in vogue from 1st April, 2017. Under current rules, 12 banks were placed under sanctions after the tolerance limit was exceeded. Barring one, all banks have come out of the framework in the last two years but no uniform exit policy was implemented for them. for example, reserve Bank of India removed PCA from Bank of India and

Their net non-performing asset ratio fell below the risk threshold of 6% in January 2019.

But when the restrictions were lifted they were not profitable. In contrast, the erstwhile Oriental Bank of Commerce was profitable but its NPA was more than 6% at the time of PCA’s removal. With the introduction of the Structured Exit Policy, RBI has attempted to address this anomaly. Under the current framework, if a bank makes a net loss in consecutive financial years, RBI applies PCA.

This clause has been omitted in the revised guidelines. Once a bank comes under PCA, the bank is taken out of PCA Framework and/or the restrictions imposed hereunder shall be considered for withdrawal, if no breach in the exposure limits in any of the parameters is observed, as per four consecutive quarterly financial statements, one of which shall be audited in the annual financial statements. should go, RBI said on Tuesday.

However, any exit from the framework would depend on the RBI’s supervisory comfort and assessment on the stability of the bank’s profitability. The regulator has also changed the capital norms and leverage norms. The objective of the PCA framework is to enable timely supervisory intervention and the supervised entity is required to initiate and implement remedial measures in a timely manner, so as to restore its financial health, the RBI said.

“The PCA framework is also intended to act as a tool for effective market discipline,” it said. These rules, however, do not bar the regulator from taking any action other than the corrective actions prescribed in the framework, which is applicable to all banks operating in India, including foreign banks operating through branches or subsidiaries.

A bank is generally placed under a framework based on audited annual financial results. However, this does not prevent the RBI from imposing sanctions on any bank during a year in extreme cases.