Consider the following statements regarding Prompt Corrective Action (PCA) of Reserve Bank of India:

1. It aims to monitor the operation of weaker banks more closely to encourage them to conserve capital and avoid risks.
2. It imposes certain restrictions on dividend distribution and expansion of branches by banks that are financially weak.

Which of the above statements is/are incorrect?

Question

Consider the following statements regarding Prompt Corrective Action (PCA) of Reserve Bank of India:

1. It aims to monitor the operation of weaker banks more closely to encourage them to conserve capital and avoid risks.

2. It imposes certain restrictions on dividend distribution and expansion of branches by banks that are financially weak.

Which of the above statements is/are incorrect?

Quintessence Classes · Accepted Answer

The correct answer is Neither 1 nor 2. This question requires careful reading, as it asks for the incorrect statements. Here is the breakdown of why both statements are actually correct, making "Neither" the right choice:Statement 1 is correct: The Prompt Corrective Action framework is designed by the Reserve Bank of India to identify and closely monitor banks with weak financial metrics, specifically concerning capital adequacy, asset quality, and profitability. The primary objective is to intervene early and encourage these banks to conserve capital and avoid taking on further financial risks.Statement 2 is correct: When a bank falls under the Prompt Corrective Action framework, the Reserve Bank of India triggers mandatory corrective actions to halt further financial deterioration. These restrictions explicitly include halting dividend distributions and stopping the expansion of new branches. Depending on the severity, it may also cap management compensation and restrict certain types of lending.

Answer

1 only

Answer

2 only

Answer

Both 1 and 2

Answer & Explanation

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JKPSC JKAS 2022 Prelims

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