Title: Modelling the recovery of Indian banks under prompt corrective action framework: TOPSIS methodology

Authors: K.C. Arora; L. Ramani

Addresses: Birla Institute of Management Technology, Greater Noida (State of Uttar Pradesh), 201306, India ' Birla Institute of Management Technology, Greater Noida (State of Uttar Pradesh), 201306, India

Abstract: The current study empirically investigates the comparative financial health of each of the 12 Indian banks under prompt corrective action (PCA) framework considering multiple triggers of PCA framework collectively. A model for predicting the recovery of these banks from PCA has been proposed based on three different multi-criteria decision-making methods (MCDM), one being the technique for order of preference by similarity to the ideal solution (TOPSIS) proposed by Hwang and Yoon (1981) to rank the set of alternatives. It has been hypothesised that higher the rank, faster could be the recovery of a bank based on multiple trigger values of these banks for three to four years from the date of revised PCA framework. The results have been amply validated with the action of the Indian banking regulator, the Reserve Bank of India, to declare some of the banks out of PCA framework in January and February 2019.

Keywords: prompt corrective action; PCA; Reserve Bank of India; RBI; CRAR; CET1; NNPA; leverage ratio; weighted average deviation index; TOPSIS methodology; modelling PCA banks' recovery.

DOI: 10.1504/AAJFA.2022.121762

Afro-Asian Journal of Finance and Accounting, 2022 Vol.12 No.1, pp.1 - 27

Received: 10 Jan 2020
Accepted: 17 Apr 2020
Published online: 07 Apr 2022 *

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