economics medium True/False

Under the Prompt Corrective Action (PCA) framework, the RBI imposes strict restrictions on a bank's dividend distribution, branch expansion, and management compensation if it breaches specific capital and NPA thresholds.

  1. True
  2. False

Answer: True

The PCA framework acts as an early intervention mechanism. When a bank's financial health deteriorates (e.g., high Net NPAs, low Capital to Risk-Weighted Assets Ratio, or negative Return on Assets), the RBI invokes PCA to restrict risky activities and force the bank to focus on recapitalization, provisioning, and cleaning up its balance sheet.

Topic Banking - Regulation
Exam Relevance Banking, UPSC Prelims, SSC
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