Prompt Corrective Action Framework Introduced for UCBs

The Reserve Bank of India (RBI) has announced a new Prompt Corrective Action (PCA) framework for primary (urban) co-operative banks (UCBs), aiming to concentrate on larger UCBs that require intensive monitoring and optimal supervisory resource allocation. This PCA framework will replace the Supervisory Action Framework (SAF), which was previously used as an early intervention tool for improving weaker UCBs.

The PCA framework’s primary goal is to facilitate timely supervisory intervention and require UCBs to implement remedial measures to restore financial health. It will apply to all UCBs in Tier 2, Tier 3, and Tier 4 categories, excluding those under All Inclusive Directions. Tier 1 UCBs are currently excluded from this framework.

The new provisions will come into effect on April 1, 2025.

Compared to the SAF, the PCA framework is largely principle-based with fewer parameters but maintains rigorous supervisory standards. The revised framework offers flexibility for designing entity-specific supervisory action plans based on individual risk assessments.

Notably, the revised framework eliminates the hard-coded ₹25,000 limit for restrictions on capital expenditure under the SAF. Supervisors will now set limits based on their assessment of each entity. This change is expected to enhance the focus on larger UCBs that require more intensive monitoring while ensuring optimal use of supervisory resources.

The key areas of monitoring under the revised PCA Framework will include capital, asset quality, and profitability. The introduction of the PCA framework reflects the RBI’s commitment to strengthening the financial health and stability of urban co-operative banks through a more tailored and effective supervisory approach.