Lending to the corporate sector, particularly small and medium enterprises, is becoming increasingly difficult with more than half the country’s public sector banks (PSBs) now under the RBI’s Prompt Corrective Action (PCA) framework, which restricts lending activities of the banks, government sources said.

Government sources also confirmed that at least three-four more banks are expected to be brought under the PCA framework because of deteriorating performance.

What is Prompt Corrective Action (PCA) framework?
Under Prompt Corrective Action (PCA) Framework, Reserve Bank of India has set some trigger points such as CRAR (Capital to Risk weighted Assets Ratio), Non Performing Assets (NPA), Return on Assets (RoA), Leverage Ratio for initiation of certain structured and discretionary actions in respect of banks breaching such trigger points. The initiation of PCA results in restrictions imposed on the bank from lending to distribution of dividend, expansion of branch, staff expansion etc.

In other words, PCA framework are supervisory tools which involves monitoring of certain performance indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to capital, asset quality etc. are breached.

(Adapted from The Indian Express)