Print Friendly, PDF & Email

2) What do you understand by Prompt corrective action framework? critically analyze whether recapitalizing banks which are under PCA framework is a bad idea?(250 words)

Topic: Indian economy : Issues

2) What do you understand by Prompt corrective action framework? critically analyze whether recapitalizing banks which are under PCA framework is a bad idea?(250 words)

Financial express

Why this question

Investment in the economy is not picking up and credit availability is a major concern. In this light, the article critically evaluates the decision of the government to recapitalize public sector banks. We need to understand the pros and cons of this move.

Key demand of the question

The question expects us to explain what PCA framework is. Thereafter, we need to discuss the decision of the government to recapitalizing banks under PCA framework and evaluate whether that is the right way forward.

Directive word

Critically analyze – When asked to analyze, you  have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.

Structure of the answer

Introduction – Highlight about the bad loans problem and the stressed balance sheets of the bank.

Body

  • Explain about the prompt corrective action framework and the reasons why it was undertaken.
  • Highlight the step of the government to recapitalize banks under PCA framework and discuss the pros and cons of it
  • Pros
    • Boost economic activity especially for MSME sector which hamare facing liquidity crunch
    • To avoid the contagion effect etc
  • Cons
    • lending processes at these lenders are not up to the mark and therefore, at this stage, it is better to let these banks recover fully else there could be a re-lapse.
    • Norms of financial prudence have not been observed by these banks etc

Conclusion – Give your view and discuss way forward.