Economics · Banking System & RBI Guidelines

A mid-sized private sector bank, 'Vikas Bank,' has been under intense regulatory scrutiny due to a sharp rise in its Gross Non-Performing Assets (GNPAs) and a significant decline in its Capital to Risk Weighted Assets Ratio (CRAR). The bank's Return on Assets (RoA) has been negative for two consecutive years. In response, the Reserve Bank of India has placed 'Vikas Bank' under the 'Prompt Corrective Action' (PCA) framework. Under PCA, the bank faces several restrictions, including a ban on dividend distribution, a limit on branch expansion, and a cap on management compensation. The RBI has also suggested that the bank needs an immediate infusion of capital and a complete overhaul of its credit appraisal process. The market has reacted negatively, with the bank's stock price crashing by 40 percent. The board of directors is now frantically searching for a strategic investor or considering a merger with a stronger bank to survive. Based on the PCA framework and the Indian banking structure, what is the primary objective of the RBI in placing a bank under PCA, and what is the 'threshold' typically related to CRAR that triggers this action?