The Reserve Bank of India (RBI) has issued a Prompt Corrective Action (PCA) Framework for Primary (Urban) Co-operative Banks (UCBs), effective from April 1, 2025. This new framework is designed to replace the existing Supervisory Action Framework (SAF), which was last revised in January 2020.
The PCA framework aims to bring about necessary improvements in financially stressed UCBs by providing a more flexible and principle-based approach to supervision.
The Framework has been harmonized with similar frameworks for Scheduled Commercial Banks and Non-Banking Financial Companies, incorporating suitable modifications to account for the unique nature of UCBs. This harmonization ensures that the framework maintains its supervisory rigor while being tailored to the specific needs of UCBs.
Unlike the SAF, which had a fixed set of parameters, the PCA Framework is principle-based, allowing for a more tailored supervisory action plan based on the specific risks faced by each UCB.
One of the significant changes in the new framework is the removal of the hard-coded limit of ₹25,000 for restrictions on capital expenditure by UCBs. Under the new PCA Framework, supervisors have the discretion to set capital expenditure limits based on their assessment of the individual UCB’s financial condition. This change allows for more flexibility and better alignment with the actual financial health of the UCBs.
The PCA Framework applies to all UCBs in Tier 2, Tier 3, and Tier 4, except those under All Inclusive Directions (AID), according to a notification by RBI. Tier 1 UCBs are currently excluded from the PCA Framework but will continue to be subject to enhanced monitoring under the existing supervisory framework. This exclusion allows the RBI to focus its supervisory resources on larger UCBs that require more intensive monitoring.
“The revised framework is expected to give more focus on the larger UCBs requiring more intensive monitoring by optimal utilisation of supervisory resources,” the bank said in the notification.