What is Prompt Corrective Action or PCA

Prompt Corrective Action or PCA  is a qualitative tool introduced by the Reserve Bank of India, under which weak banks are directly involved in maintaining financial health of the bank and protects them from excessive losses.

It helps in evaluating, monitoring, controlling and evaluating corrective measures on the banks in difficulties by including some active issues. Thus PCA provides an opportunity to the regulator to engage with the management of the bank to secure its financial health.

Why the need for PCA 

In the early 1980s and 1990s many bank and financial institutions around the world had faced monetary loss during the financial crisis. Over 1600 commercial banks either closed down or receive financial support from the United States. The loss suffered by them increased to over 100 billion us dollars. In this way need for proper inspection strategies (Prompt Corrective Action) to overcome such incidents from banks and financial institutions.

It was first presented in India in 2002, during the tenure of RBI’s governor Bimal Jalan and in April 2017, RBI’s  governor Urjit Patel further tightened its rules.

Parameters of PCA framework

(i) Capital to risk weighted assets ratio (CRAR)

(ii) Net non-performing assets (NPA)

(iii) Return on Assets (RoA)

When RBI apply PCA on banks.

RBI has presented four criteria for evaluating Prompt Corrective each of these parameters has been classified according to the severity of the situation and each category takes action of a separate set by the Reserve Bank of India.

Also, the RBI has defined three crisis borders for each parameter and also has specific correctional measures for each boundary line. Corrective work will depend on the crisis of the bank. As a result of any breach of the crisis boundary line, PCA have to invite. If the crisis is high then corrective actions for the bank will be more difficult.

The parameter on which banks are considered eligible for prompt corrective action are as follows :-

Capital to risk weighted assets ratio (CRAR) :- The first criterion is the CRAR or capital to risk weighted assets ratio. This is a measure of financial strength of the bank, if it is above 9%, then the bank is considered capable of recovering from any crisis. If it comes below 9%, then the bank is considered in the crisis zone and the PCA  is reported for.

Net non-performing assets (NPA) :- The second criterion is the quality of the property, which is defined as the total non-executed property of the bank. If due to bad loans, NPAs if the percentage exceeds 6% - 9%, the bank is considered a distressed bank and requires Prompt Corrective Action (PCA).

Return on Assets (ROA):- Return on Assets (ROA) is the third parameter, the profit on property is considered as a benchmark. If the return on assets comes down to 0.25% then the bank subjected to Prompt Corrective Action.

ROA = Total Income/Total Assets

The Prompt Corrective Action (PCA) framework is only applicable to commercial banks and not extended to co-operative banks, non-banking financial companies (NBFCs) and FMIs.

Some Public sector Banks under PCA

Allahabad Bank

United Bank of India

Corporation Bank


UCO Bank

Bank of India

Central Bank of India

Indian Overseas Bank

Oriental Bank of Commerce

Dena Bank

Bank of Maharashtra 

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