What changed
The PCA framework was reviewed and revised, with the new version effective from January 1, 2022. Key monitoring areas now include capital, asset quality, and leverage, tracked via CRAR/CET1 ratio, Net NPA ratio, and Tier 1 Leverage Ratio. Risk thresholds are defined for each indicator, with three levels of breach severity.
What it means for you
Banks must closely monitor their CRAR, CET1, Net NPA, and Tier 1 Leverage ratios to avoid PCA triggers. Breaches can lead to mandatory and discretionary corrective actions, impacting operations and growth. Exit from PCA requires four continuous quarters of no breaches, including one audited annual statement, and supervisory comfort.
What you must do
- Review and align internal monitoring systems with the revised PCA risk thresholds for CRAR, CET1, Net NPA, and Tier 1 Leverage Ratio.
- Ensure board awareness and compliance with the new framework effective January 1, 2022.
- Prepare contingency plans for potential PCA invocation, including corrective action strategies.
- Strengthen capital planning and asset quality management to avoid breaching thresholds.
Who it affects
All Scheduled Commercial Banks (excluding Small Finance Banks, Payment Banks, and Regional Rural Banks), Foreign banks operating in India through branches or subsidiaries
What triggers PCA under the revised framework?
PCA is triggered by breaches in risk thresholds for CRAR/CET1 ratio, Net NPA ratio (>=6%, >=9%, >=12%), or Tier 1 Leverage Ratio (below regulatory minimum by up to 50 bps, more than 50 bps but not exceeding 100 bps, or more than 100 bps).
How can a bank exit PCA?
Exit requires no breaches in any parameter for four continuous quarterly financial statements (one of which should be an audited annual financial statement) and supervisory comfort from RBI on sustainability of profitability.