Question

Q. Which of the following are the indicators used by RBI to trigger the Prompt Corrective Action framework?

Select the correct answer using the codes given below:

• A. 2 and 4 only
• B. 2 and 3 only
• C. 1, 3 and 5 only
• D. 1, 2, 3 and 5 only

Answer 1

The correct option is C 1, 3 and 5 only

Explanation:

Prompt Corrective Action (PCA) is a framework in which banks with weak financial records are placed under the supervision of the Reserve Bank of India.

RBI uses the following indicators to trigger the PCA.

• Capital: CRAR - Minimum regulatory prescription for capital to risk assets ratio + applicable capital conservation buffer(CCB).
• Asset quality: Net Non-performing advances (NNPA) ratio- The Net NPA is obtained by deducting the provisioning amount from the Gross NPA.
• Profitability: Return on assets (ROA)- Return on Assets (ROA) is a profitability ratio that indicates the net profit (net income) generated on total assets.
• Leverage: Tier 1 leverage- The Tier 1 leverage ratio measures a bank's core capital to its total assets.

Under the BASEL III norms, the Liquidity ratio and Net Stable funds ratio are used to achieve a minimum liquidity standard for all the active banks.