D-SIBs, Prompt Corrective Action and Bank Supervision: RBI Rules

The correct answer is B, 2014. The Reserve Bank of India issued the D-SIB framework on 22 July 2014, setting out how banks would be picked for the sample, how their systemic importance score would be computed from size, interconnectedness, substitutability and complexity, and how much additional Common Equity Tier 1 capital each bucket would attract. The first names under the framework were disclosed the following year.

Option A, 2011, is the year the Financial Stability Board began publishing the global list of Systemically Important Banks, which is a different exercise carried out at the world level, so it is a classic distractor. Option C, 2017, is the year the earlier Prompt Corrective Action framework for banks was issued, not the D-SIB framework. Option D, 2021, is the year the revised PCA framework was notified. Candidates who mix up these three dates lose an easy mark, so remember 2014 for D-SIBs and 2021 for revised PCA.

The correct answer is B, Leverage. The 2017 framework watched capital, asset quality and profitability, with return on assets as the profitability indicator. The revised framework notified on 2 November 2021 and effective from 1 January 2022 keeps capital and asset quality but drops profitability and brings in leverage, measured by the Tier 1 leverage ratio, as the third core area. This is the single most asked point from the revised framework.

Option A, liquidity, is a prudential concern addressed through the liquidity coverage ratio and the net stable funding ratio, not through PCA parameters. Option C, credit growth, is monitored by the supervisor in other ways but is not a PCA trigger. Option D, provision coverage, is a measure of how much a bank has set aside against bad loans; it is a supervisory expectation rather than a PCA parameter. So the three areas to memorise are capital, asset quality and leverage.

The correct answer is B, Three. The PCA framework arranges breaches into three risk thresholds, each more serious than the last, and attaches mandatory corrective actions to each. Risk Threshold 1 restricts dividend distribution and requires the owners to bring in capital. Risk Threshold 2 adds curbs on branch expansion in India and abroad. Risk Threshold 3 adds limits on capital expenditure, leaving out technology upgrades within board-approved limits.

Option A, two, understates the structure. Option C, four, is a tempting choice because candidates confuse the three thresholds with the four quarterly results needed for exit from PCA. Option D, five, is the number of buckets in the D-SIB framework, not the number of PCA thresholds, so it is the standard cross-topic trap. Keep the pair in mind: five buckets under D-SIB, three thresholds under PCA.

The correct answer is C, State Bank of India. In the 2025 list State Bank of India sits in bucket 4 and must hold an extra Common Equity Tier 1 cushion of 0.80 per cent of its risk weighted assets, over and above the normal minimum and the capital conservation buffer. It is the only bank in a bucket higher than bucket 2, which reflects its size relative to the Indian economy.

Option A, HDFC Bank, is a D-SIB but sits in bucket 2 with a surcharge of 0.40 per cent. Option B, ICICI Bank, is in bucket 1 with the lowest surcharge of 0.20 per cent. Option D, Punjab National Bank, is a large public sector bank but has not been identified as a D-SIB, so it carries no surcharge. Buckets 3 and 5 are empty, which is itself a frequently asked detail.

The correct answer is C, Regional rural banks. The revised framework applies to all scheduled commercial banks but expressly leaves out three categories: small finance banks, payments banks and regional rural banks. Regional rural banks are sponsored by commercial banks and are supervised through a separate arrangement, so they stay outside this framework.

Option A, public sector banks, are squarely covered, and several of them have been placed under PCA in the past. Option B, private sector banks, are also covered, and a private bank can be placed under PCA exactly like a public sector bank. Option D, foreign banks operating through branches in India, are covered too; for them the framework specifically contemplates the parent being asked to bring in capital at Risk Threshold 1. The exclusion list of three is what the question is testing.

The correct answer is B, Net non-performing assets ratio. Under the revised framework the three indicators are the capital to risk weighted assets ratio or the Common Equity Tier 1 ratio for capital, the net non-performing assets ratio for asset quality, and the Tier 1 leverage ratio for leverage. The net figure is used because it shows the bad loans left uncovered after provisions, which is the amount that can still eat into capital.

Option A, gross non-performing assets ratio, is widely reported and widely quoted in the press, which makes it the most tempting wrong answer, but the framework uses the net ratio. Option C, slippage ratio, measures fresh additions to bad loans during a year and is an analytical measure, not a PCA trigger. Option D, provision coverage ratio, shows how much has been provided against bad loans and is a supervisory expectation rather than a threshold parameter here.

The correct answer is A, Risk Threshold 1. The first set of mandatory actions, applied as soon as a bank crosses Risk Threshold 1, is a restriction on dividend distribution or remittance of profits, together with a requirement that the promoters, owners or the parent of a foreign bank infuse capital. The logic is simple: money that could strengthen capital should not leave the bank.

Option B, Risk Threshold 2, carries all the Threshold 1 actions plus a restriction on opening branches in India or abroad, so the dividend curb is included there but did not begin there. Option C, Risk Threshold 3, carries everything above plus limits on capital expenditure other than board-approved technology upgrades. Option D is wrong because a moratorium under the Banking Regulation Act is a far later and rarer step, used when a bank is being reconstructed or amalgamated, and PCA restrictions start long before that point.

The correct answer is C, Four. Withdrawal of PCA restrictions is considered when no parameter has breached a risk threshold across four continuous quarterly financial statements, and one of those four must be the audited annual financial statement. The audited statement is insisted upon so that the improvement is confirmed by an auditor and not only by provisional numbers.

Option A, two, and option B, three, are too short a run for the supervisor to be convinced that the turnaround is real rather than the result of one good quarter. Option D, six, overstates the requirement. Note also that four clean quarters are necessary but not by themselves sufficient: the Reserve Bank additionally looks for supervisory comfort, including an assessment of whether the bank's profitability is sustainable, before taking it out of the framework.

The correct answer is B, the Governor of the Reserve Bank of India. The Board for Financial Supervision was constituted in November 1994 so that supervision of banks, select all-India financial institutions and non-banking financial companies would get undivided attention. It is a committee of the Central Board of the Reserve Bank, chaired by the Governor, with a Deputy Governor as vice-chairman and some members of the Central Board on it.

Option A is wrong because the Union Finance Minister heads the government's own financial machinery, not a Reserve Bank committee; supervision of banks is a central bank function kept at arm's length from the ministry. Option C, the Finance Secretary, heads the Department of Economic Affairs in the government and has no chairing role here. Option D is wrong because the Securities and Exchange Board of India regulates securities markets, a separate domain. The Reserve Bank's statutory power to inspect a bank comes from Section 35 of the Banking Regulation Act, 1949.

The correct answer is B, 9 per cent. India applies Basel III with a stricter minimum: the capital to risk weighted assets ratio must be at least nine per cent, of which Common Equity Tier 1 must be at least 5.5 per cent and Tier 1 at least seven per cent. The Reserve Bank has consistently kept the Indian minimum one percentage point above the global floor.

Option A, 8 per cent, is the Basel III minimum total capital ratio agreed internationally and is the most common error in this question. Option C, 10.5 per cent, is the Basel figure of eight per cent plus the capital conservation buffer of 2.5 per cent, which is the global requirement including the buffer. Option D, 11.5 per cent, is the Indian nine per cent plus the 2.5 per cent conservation buffer, which is the effective Indian requirement once the buffer is counted, but the minimum ratio asked for in the question is nine per cent.

The correct answer is C, Profitability. The systemic importance score of a bank is built from four indicators: size, interconnectedness, substitutability and complexity. Size carries the highest weight because the sheer scale of a bank's balance sheet decides how much damage its failure would do. Profitability has nothing to do with systemic importance; a very profitable bank can still be small, and a loss-making bank can still be systemic.

Option A, size, is the first and most heavily weighted indicator. Option B, interconnectedness, captures how much the bank lends to and borrows from other financial institutions, because those links transmit distress. Option D, complexity, captures how complicated the bank's business and instruments are, since a complex bank is harder to resolve in a crisis. Substitutability, the fourth indicator, asks how easily other banks could take over its services, such as payments and custody.

The correct answer is B, rupees five crore. The Central Repository of Information on Large Credits, usually shortened to CRILC, is a database maintained by the Reserve Bank in which banks report details of every borrower whose aggregate exposure, funded and non-funded together, is five crore rupees or more. The purpose is early detection of stress: once a borrower starts defaulting at one lender, every other lender can see it.

Option A, one crore, is too low and would flood the repository with small accounts. Option C, ten crore, and option D, fifty crore, are too high and would let large stressed accounts escape notice. Along with CRILC, remember that the Central Fraud Registry is the Reserve Bank's database of frauds reported by banks, and that both are off-site surveillance tools that work alongside on-site inspection under risk-based supervision.