RBI introduces new PCA framework for urban cooperative banks

New Delhi, July 27 (KNN) The Reserve Bank of India (RBI) has introduced a new Prompt Corrective Action (PCA) framework for major urban cooperative banks (UCBs), replacing the existing Supervisory Action Framework (SAF).

The change, announced in a circular on Friday, aims to improve monitoring of larger cooperative banks and optimise the use of supervisory resources.

The new PCA framework applies to Tier 2, Tier 3 and Tier 4 UCB banks, excluding those covered by All Inclusive Directions (AID).

Category 1 UCBs are currently exempt from this framework but will continue to be subject to enhanced monitoring.

This principles-based framework includes fewer parameters than the SAF, while maintaining supervisory rigour by enabling more flexible, risk-based, individual supervisory action plans.

In order to align the legal framework with similar regulations applicable to commercial banks and non-bank financial institutions, the RBI has introduced amendments to ensure proportionality.

A notable change is the removal of the previous hard cap on capital expenditure of Rs 25,000 crore, which allows regulators to set limits based on individual assessments of entities.

The RBI says the new regulatory framework provides greater flexibility in dealing with risks while also focusing on larger corporate banks that require more intensive supervision.

This development marks a significant change in the regulatory approach towards urban cooperative banks in India, aimed at strengthening the financial stability of these institutions.

(KNN Office)