The Reserve Bank of India (RBI) has announced a new prompt corrective action (PCA) framework for primary (urban) co-operative banks (UCBs). This framework, set to take effect from April 1, 2025, will replace the existing supervisory action framework (SAF), which had been in place since January 6, 2020.

Overview of the PCA framework

The PCA framework aims to enhance the regulatory oversight and intervention mechanisms for UCBs, aligning them more closely with the practices applied to scheduled commercial banks and non-banking financial companies.

The new framework is designed to address the financial health of UCBs with greater precision and flexibility.

Key features of the PCA framework

The PCA framework has been harmonised with similar frameworks used for scheduled commercial banks and non-banking financial companies, according to RBI.

It introduces suitable modifications to address the unique aspects of UCBs while maintaining the core principle of proportionality.

Unlike its predecessor, the PCA framework adopts a largely principle-based approach with fewer parameters. This change aims to enhance supervisory efficiency without compromising on the rigor of oversight, RBI said.

This move is expected to provide a more nuanced response to the varying challenges faced by different banks.

The PCA framework eliminates the rigid ₹25,000 limit on capital expenditure restrictions that was imposed under the SAF. Supervisors will now have the discretion to set limits based on their evaluation of individual entities.

The PCA framework will apply to all UCBs in tier 2, tier 3, and tier 4 categories, with the exception of those under all inclusive directions (AID).

Tier 1 UCBs will not be covered by the PCA framework but will continue to be monitored under the current supervisory framework.