Imposition of Prompt Corrective Action (PCA) framework has starved the Indian economy of fresh credit. In this context, do you agree with the view that PCA should be diluted? Comment (200 words)
Refer – Economic Times
Enrich the answer from other sources, if the question demands.
IAS Parliament 6 years
KEY POINTS
Prompt Corrective Action (PCA)
· PCA is primarily to take appropriate corrective action on weak and troubled banks.
· It prohibits them from undertaking fresh business activities such as opening branches, recruiting talent or lending to risky companies.
· It is argued that putting banks under the PCA is affecting the flow of credit in the economy.
· Though, it may be true to some extent, it may not be right to dilute PCA.
Purpose of PCA
· Putting banks under the PCA framework is part of a broader action plan to bring the ailing banking system back on track.
· This is to prevent further capital erosion and stabilize the bank.
· The basic idea is “to intervene early and take corrective measures in a timely manner”, so as to restore the financial health of banks.
· The core principles of such structured intervention and resolution are in sync with global practices.
· It will help clean up bank books and safeguard overall financial stability.
· Also, diluting the PCA norms could worsen the problem.
· It is likely that weak banks will end up accumulating more bad loans, which will erode their capital further.
· This will lead to demands on taxpayer money for recapitalization of PSBs.
· Besides, having too many weak banks will increase risks to financial stability.
· Contraction in lending by banks under PCA is being compensated by higher credit growth at healthier banks.
· But, any dilution in the PCA framework or other measures that have been taken to clean up the banking system will only increase the cost in the long run.
Secret agents 6 years
Kindly review.
IAS Parliament 6 years
Try to explain the advantages of PCA in detail to strengthen your justification. Otherwise a good attempt. Keep writing.
