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RBI mulls PCA framework for cooperative banks
June 02, 2023
The Reserve Bank of India (RBI) is considering bringing urban cooperative banks (UCB) in the ambit of prompt corrective action (PCA) mechanism in order to strengthen the cooperative sector lenders, the central bank said in its annual report for 2022-23.
RBI’s corrective action is triggered when a bank or non-banking finance company (NBFC) fails to maintain the mandated capital adequacy ratio of 9% or its net non-performing asset ratio is above 10%.
The RBI can impose strict restrictions on the bank which triggers this framework including starting new lines of business and issuing certain risky loans or it may also change the management of the lender.
The business restrictions are lifted once the bank manages to regain its capital adequacy or reduce the bad loans.
Among other measures, the RBI is also examining introduction of risk-based supervision approach for UCBs and also expanding the scope of IT examination for some cooperative banks.
The Reserve Bank of India in FY23 rolled out the key risk indicators in terms of cyber security for tier-3 and 4 UCBs with asset size over ₹5,000 crore. RBI is creating a scoring model based on the the data received from the banks, besides conducting workshops for UCBs with asset size of ₹500 crore to sensitise them on fraud prevention, prompt reporting and follow up action.
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