Informist, Friday, Jul 26, 2024

--RBI: Corrective action norms for tier-2, tier-3, tier-4 co-op bks
--RBI: Corrective action norms for urban co-op bks effective Apr 2025

MUMBAI - The Reserve Bank of India today issued a prompt corrective action framework for primary (urban) co-operative banks, which will be applicable to all urban co-operative banks under tier-2, tier-3 and tier 4 categories.

"The objective of the PCA (prompt corrective action) Framework is to enable supervisory intervention at an appropriate time and requires the UCBs (urban co-operative banks) to initiate and implement remedial measures in a timely manner, to restore their financial health," the central bank said in a press release.

The provisions of the prompt corrective action framework will be effective from Apr 1, 2025.

Urban co-operative banks, which are currently under all-inclusive directions, are exempted from the prompt corrective action framework, the RBI said.

quote

RBI said urban co-operative banks under all-inclusive directions shall continue to be monitored as hitherto, including with respect to the conditions under all-inclusive directions, and a suitable transition time shall be provided to such urban co-operative banks for compliance with the provisions of the prompt corrective action framework, as and when these come out of all-inclusive directions.

Tier-1 urban co-operative banks are not covered under the prompt corrective action framework as of now, and shall be subject to enhanced monitoring under the extant supervisory framework, the central bank said. The exemption of tier-1 urban co-operative banks from the prompt corrective action framework will be reviewed in due course.

The central bank further said that the prompt corrective action framework does not preclude RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework.

Capital, asset quality and profitability will be the key areas for monitoring under the prompt corrective action framework, and breach of any risk threshold may result in invocation of the prompt corrective action framework.

Following are the conditions for invocation of prompt corrective action framework:

When the bank is placed under such a framework, one or more corrective actions will be prescribed, such as raising capital either from existing members or by issuance of equity and other permissible capital instruments, restriction on declaration of dividends, payment of donations, appropriate restrictions on capital expenditure other than for technology upgradation.

Withdrawal of restrictions under prompt corrective action framework will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be an audited annual financial statement subject to assessment by RBI and based on supervisory comfort of the RBI including an assessment on sustainable improvement in key financials of the bank, the release said. End

Reported by Richard Fargose

Edited by Vandana Hingorani

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