RBI issues prompt corrective action framework for UCBs

The Reserve Bank of Indiaon Friday issued a prompt corrective action framework for urban cooperative banks with an aim to enabling supervisory intervention at an appropriate time.

The provisions of the Prompt Corrective Action (PCA) Framework for Primary (Urban) Co-operative Banks (UCBs) will be effective from April 1, 2025.

The objective of the PCA Framework is to enable supervisory intervention at an appropriate time and require the UCBs to initiate and implement remedial measures in a timely manner to restore their financial health.

The Reserve Bank had issued a Supervisory Action Framework (SAF) as an early intervention tool for bringing about desired improvements in weak UCBs and UCBs which are experiencing financial stress. The SAF was last revised in January 2020.

"This PCA framework shall replace the SAF," the RBI said in a statement.

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The revised framework seeks to provide flexibility to design entity-specific supervisory action plans based on the assessment of risks on a case-by-case basis.

"The framework has been suitably harmonised with similar frameworks applicable for Scheduled Commercial Banks and Non-Banking Financial Companies, with suitable modifications keeping in mind the underlying principle of proportionality," it said.

RBI said the PCA framework is largely principle-based with fewer parameters as compared to the SAF, without any dilution in the supervisory rigour.

"The revised framework is expected to give more focus on the larger UCBs requiring more intensive monitoring by optimal utilisation of supervisory resources," it added.

Capital, asset quality and profitability will be the key areas for monitoring in the revised PCA Framework.

The framework will be applicable to all UCBs except the small ones (Tier 1 UCBs).

Reserve Bank has categorised UCBs into four tiers for regulatory purposes.