Page 26 - Banking Finance August 2020

COVER STORY

INTEREST SUBVENTION

SCHEME TO RBI

SUPERVISORY ACTION

FRAMEWORK AND

PERFORMANCE OF

COOPERATIVE BANKS

Abstract: Introduction:

The recent mega fraud of Punjab and Maharastra Bank Reserve Bank of India (RBI) introduced Prompt Corrective
has shaken the confidence in Urban Cooperative Banks Action (PCA) for the first time in December 2002 when
(UCBs). For revival of these banks, constant monitoring public sector banks were witnessing a high and increasing
of financial health of these banks by the RBI is a must for level of non-performing assets (NPAs) and weakness in their
which Supervisory Action Framework (SAF) is an effective overall financial performance. RBI imposes the PCA if a
tool. Under SAF, monitoring of the financial health of UCBs commercial bank's financial condition worsens for which it
is done through three trigger points namely, CRAR, Asset specifies a 'trigger point' or 'risk threshold' of each of
Quality and Profitability. This SAF is in existence since specified areas of financial health of banks. When any trigger
2012. The present article studies of financial performance point/risk threshold is brought to the notice of RBI, it
of UCBs since the introduction of SAF which reveals several intervenes with corrective actions/restrictions.
concerns. While SAF seems to be an effective supervisory A bank would be placed under the PCA framework
tool of the RBI, its benefits are yet to be derived. For this
depending upon the audited annual financial results and
purpose, it calls for more seriousness on the part UCBs
RBI's supervisory assessment. Once the bank comes under
to improve their overall financial performance by ensuring the PCA, the periodical submission of reports by the bank to
the participation bank staff at all level.
the RBI and its meetings with the supervisory authority are
compulsory. RBI revised PCA guidelines from time to time.
About the author It is happy to state that there has been encouraging
response to PCA by public sector banks which is evident that
Dr V S Kaveri few banks are slowly coming out of PCA due to their overall
1
Retired Faculty improvement if financial health . Encouraged from the
NIBM, Pune success of PCA, RBI made this supervisory tool called as
Supervisory Action Framework (SAF), to Urban Cooperative

26 | 2020 | AUGUST | BANKING FINANCE