What changed
RBI has replaced the existing Supervisory Action Framework (SAF) for Primary (Urban) Co-operative Banks (UCBs) with a new Prompt Corrective Action (PCA) Framework. The PCA framework applies to Tier 2, Tier 3, and Tier 4 UCBs, excluding those under All Inclusive Directions, while Tier 1 UCBs remain under enhanced monitoring. Key monitoring parameters are capital (CRAR), asset quality (net NPA ratio), and profitability (net profit), with specific risk thresholds for each.
What it means for you
UCBs in higher tiers must now comply with stricter PCA triggers based on CRAR, net NPA ratio, and net profit, with mandatory corrective actions upon breach. This replaces the earlier SAF, giving RBI more structured intervention powers. Banks currently under SAF will continue under existing restrictions until reviewed case-by-case. The framework aims to restore financial health early, but RBI retains discretion for additional actions.
What you must do
- Review your bank's current CRAR, net NPA ratio, and net profit against the new PCA risk thresholds.
- Place a copy of this circular before your Board of Directors in the next meeting and send confirmation to the Senior Supervisory Manager.
- Prepare for compliance from April 1, 2025, by aligning capital and asset quality strategies to avoid PCA triggers.
- If your bank is currently under SAF, engage with RBI for case-by-case exit or PCA placement review.
Who it affects
All Primary (Urban) Co-operative Banks in Tier 2, Tier 3, and Tier 4 categories, UCBs currently under the Supervisory Action Framework (SAF), Tier 1 UCBs (subject to enhanced monitoring, not PCA yet)
What are the key indicators and risk thresholds for PCA?
The three indicators are CRAR (breach thresholds: up to 250 bps, 250-400 bps, >400 bps below minimum), Net NPA ratio (>=6%, >=9%, >=12%), and net profit (incurred losses during two consecutive years).