The Reserve Bank of India (RBI) has decided to bring non-banking finance companies (NBFCs) under the ambit of the prompt corrective action (PCA) framework.
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- Under the framework, NBFCs will face restrictions when certain parameters like non-performing assets, capital adequacy ratio and Tier 1 capital fall below the stipulated levels.
- The PCA framework for NBFCs will come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.
- It will be applicable for all deposit-taking NBFCs, however, those not taking deposits and with an asset size of less than Rs 1,000 crore, primary dealers, government-owned NBFCs, and housing finance companies are exempt from this framework.
- The objective of the framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
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