Mumbai, Sept. 11: The Reserve Bank of India (RBI) is planning to put in place a prompt corrective action (PCA) mechanism when banks’ breach certain specified trigger points of capital adequacy, return on assets and non-performing assets.
The PCA would be introduced by the end of this fiscal and penalties for breaching norms could be stiff like removal of chairman, board of directors and liquidation of banking entities, RBI deputy governor G P Muniappan told newspersons at the sidelines of a seminar, organised by FICCI here today.
Before launching the scheme, the RBI would conduct the assessment of impact based on previous data of a few banks.
Muniappan made these comments while dwelling upon the recent developments in the area of bank supervision and regulation. He also talked about the country’s path to risk-based supervision (RBS), which would be introduced in phases beginning from 2003.
A dedicated Project Implementation Group is overseeing a smooth switchover to RBS, based on the recommendations of PricewaterhouseCoopers, London.
The RBS model involves development of a risk profile for each bank, designing a customised supervisory action plan based on the risk profile, delineating the scope and extent of supervision to target high risk areas and areas of supervisory concern, and strengthening quality assurance and enforcement functions to maintain objectivity and neutrality in application of supervisory standards.
The risk-based supervision approach will involve allocation of supervisory resources in accordance with the risk profile of a bank.