RBI introduced the revised Prompt Corrective Action (PCA) framework in May 2022, replacing the 2017 version. The framework triggers supervisory actions when banks breach specified financial thresholds related to capital adequacy, asset quality, and profitability. Key changes include revised risk thresholds, enhanced regulatory actions, and streamlined exit provisions. Currently applies to all commercial banks except small finance banks, payment banks, and regional rural banks. Aims to enable early intervention and prevent bank failures through structured corrective measures.

The PCA framework serves as RBI's early warning system to identify weak banks before they become systemically risky. Under the 2022 revision, banks face restrictions when Capital Adequacy Ratio falls below 10.25%, Net NPA exceeds 9%, or Return on Assets turns negative for four consecutive quarters. The framework introduces a tiered approach with progressively stringent actions - from business restrictions to complete takeover. Unlike the 2017 version, the new framework emphasizes collaboration between RBI and banks for remedial action plans. Banks under PCA cannot open new branches, increase staff, or pay dividends without RBI approval. The revision also clarifies exit conditions, allowing banks to graduate from PCA when they maintain compliance for one year. This framework is crucial for maintaining banking sector stability, protecting depositor interests, and preventing taxpayer-funded bailouts. Recent applications include restrictions on cooperative banks and NBFCs, demonstrating RBI's proactive supervisory approach. The framework balances regulatory intervention with operational flexibility, ensuring banks can recover while preventing moral hazard.