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Q15. Consider the following statements when PCA is triggered:

1. RBI has set trigger points on the basis of CRAR (a metric to measure balance sheet strength), NPA and ROA.

2. Under PCA, Banks will also have to launch a special drive to reduce the stock of NPAs and contain generation of fresh NPAs.

Which of the above statements are correct?



A

a) 1 only

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B

b) 2 only

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C

c) Both 1 and 2

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D

d) None of the above

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Solution

The correct option is C

c) Both 1 and 2


RBI has set trigger points on the basis of CRAR (a metric to measure balance sheet strength), NPA and ROA. Based on each trigger point, the banks have to follow a mandatory action plan. Apart from this, the RBI has discretionary action plans too.

The rationale for classifying the rule-based action points into “mandatory“ and “discretionary“ is that some of the actions are essential to restore the financial health of banks while other actions will be taken at the discretion of RBI depending upon the profile of each bank.

Banks are not allowed to renew or access costly deposits or take steps to increase their fee-based income. Banks will also have to launch a special drive to reduce the stock of NPAs and contain generation of fresh NPAs.

They will also not be allowed to enter into new lines of business. RBI will also impose restrictions on the bank on borrowings from interbank market.


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