The
provisions of the revised PCA framework will be effective from April 1, 2017
based on the financials of the banks for the year ended March 31, 2017. The
framework would be reviewed after three years.
The
salient features of revised PCA Framework for Banks
A.Capital, asset
quality and profitability are the key areas for monitoring.
B. Indicators
for the same would be CRAR/ Common Equity Tier I ratio, Net NPA ratio and
Return on Assets respectively.
C. Leverage
would be monitored additionally.
D.Breach of any
risk threshold (as detailed under) would result in invocation of PCA.
PCA Matrix
|
Area
|
Indicator
|
Risk
Threshold
1
|
Risk
Threshold
2
|
Risk
Threshold
3
|
Capital
Breach of either
CRAR or CET 1 ratio to trigger PCA
|
CRAR-
Minimum regulatory capital to risk
assets
ratio + applicable capital conservation buffer (CCB)
current
minimum RBI
prescription
of 10.25%
And/
Or
Regulatory
pre-specified trigger of Common Equity Tier 1 (CET 1 min) + applicable
capital conservation buffer(CCB)
current
minimum RBI
prescription
of 6.75%
|
<10.25%
but
>=7.75%
<6.75%
but >=5.125%
|
<7.75%
but
>=6.25%
<5.125%
but
>=3.625%
|
-
<3.625%
|
Asset
Quality
|
Net Non-performing Advances
(NNPA) ratio
|
>=6.0%
but
<9.0%
|
>=9.0%
but
<12.0%
|
>=12.0%
|
Profitability
|
Return on
assets (ROA)
|
Negative
ROA for 2
consecutive
years
|
Negative ROA for 3
consecutive
years
|
Negative
ROA
for 4
consecutive
years
|
Leverage
|
Tier 1
Leverage ratio
|
<=4.0%
but
>=
3.5%
(leverage
is
over
25 times
the
Tier 1
capital)
|
<
3.5%
(leverage
is
over
28.6
times
the Tier 1 capital)
|
|
*CCB would be
1.875% and 2.5% as on March 31, 2018 and March 31, 2019 respectively.
i)
Breach of ‘Risk Threshold 3’ of CET1 would
invite for resolution through amalgamation, reconstruction, winding up, etc.
ii)
Default in meeting the obligations to depositors,
possible resolution processes may be resorted to without reference to the PCA
matrix.
E.
The PCA framework would apply to all
banks operating in India.
F.
A bank will be placed under PCA based on
the audited Annual Financial Results and the Supervisory Assessment made by
RBI. However, RBI may also impose PCA during the course of a year where
warranted.
Mandatory
and discretionary actions
Specifications
|
Mandatory
actions
|
Discretionary
actions
|
Risk Threshold 1
|
Restriction
on dividend, Distribution /remittance of profits.
Promoters/owners/parent
to bring in capital
|
Common menu
Special Supervisory
Interactions
Strategy related
Governance related
Capital related
Credit risk related
Market risk related
HR related
Profitability related
Operations related
Any other
|
Risk Threshold 2
|
In
addition to mandatory actions of Threshold 1,
Restriction
on branch expansion;
Higher
provisions
|
Risk Threshold 3
|
In
addition to mandatory actions of Threshold 1,
Restriction
on branch expansion;
Restriction
on management
compensation
and directors’ fees,
|
Common
menu for selection of discretionary corrective actions
1. Special Supervisory interactions
•
Special Supervisory Monitoring Meetings
(SSMMs) at quarterly or other identified frequency
•
Special inspections/targeted scrutiny of
the bank
•
Special audit of the bank
2.
Strategy related actions
RBI to advise the bank’s Board to:
•
Activate the Recovery Plan that has been
duly approved by the supervisor
•
Undertake a detailed review of business
model in terms of sustainability, profitability, medium and long term
viability, balance sheet projections, etc.
•
Review short term strategy focusing on
addressing immediate concerns
•
Review medium term business plans,
identify achievable targets and set concrete milestones for progress and achievement
•
Review all business lines to identify
scope for enhancement/ contraction
•
Undertake business process reengineering
as appropriate
•
Undertake restructuring of operations as
appropriate
3.
Governance related actions
•
RBI to actively engage with the bank’s
Board on various aspects
•
RBI to recommend to owners to bring in
new management/ Board
•
RBI to remove managerial persons under
Section 36AA of the BR Act
•
RBI to supersede the Board under Section
36ACA of the BR Act 1949/ recommend supersession of the Board
•
RBI to require bank to invoke claw back
and malus clauses and other actions as available in regulatory guidelines, and
impose other restrictions or conditions permissible under the BR Act, 1949
•
Impose restrictions on directors’ or
management compensation.
4.
Capital related actions
•
Detailed Board level review of capital
planning
•
Submission of plans and proposals for
raising additional capital
•
Requiring the bank to bolster reserves
through retained profits
•
Restriction on investment in
subsidiaries/associates
•
Restriction in expansion of high
risk-weighted assets to conserve capital
•
Reduction in exposure to high risk
sectors to conserve capital
•
Restrictions on increasing stake in
subsidiaries and other group companies
5. Credit risk
related actions
•
Preparation of time bound plan and
commitment for reduction of NPAs
•
Preparation of and commitment to plan
for containing generation of fresh
NPAs
•
Strengthening of loan review mechanism
•
Restrictions on/ reduction in credit
expansion for borrowers below certain rating grades
•
Reduction in risk assets
•
Restrictions on/ reduction in credit
expansion to unrated borrowers
•
Reduction in unsecured exposures
•
Reduction in loan concentrations; in
identified sectors, industries or borrowers
•
Sale of assets
•
Action plan for recovery of assets
through identification of areas and setting up of dedicated Recovery Task
Forces, Adalats, etc.
6. Market risk
related actions
•
Restrictions on/reduction in borrowings
from the inter-bank market
•
Restrictions on accessing/ renewing
wholesale deposits/ costly deposits/ certificates of deposits
•
Restrictions on derivative activities,
derivatives that permit collateral substitution
•
Restriction on excess maintenance of
collateral held that could contractually be called any time by the counterparty
7. HR related
actions
• Restriction on
staff expansion
• Review of
specialized training needs of existing staff
8. Profitability
related actions
• Restrictions
on capital expenditure, other than for technological upgradation
within Board
approved limits
9. Operations
related actions
• Restrictions
on branch expansion plans; domestic or overseas
• Reduction
in business at overseas branches/ subsidiaries/ in other entities
• Restrictions
on entering into new lines of business
• Reduction
in leverage through reduction in non-fund based business
• Reduction
in risky assets
• Restrictions
on non-credit asset creation
• Restrictions
in undertaking businesses as specified.
Any other specific action that RBI may
deem fit considering specific circumstances of a bank.
Based on RBI circular Dated 13/04/2016. For any further
clarification please refer www.rbi.org.in