PCA Framework now for NBFCs

The Reserve Bank of India has today issued the Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs). In a notification on its website, the RBI said the new framework; the first of its kind for NBFCs will come into effect from October 1 next year. It may be recalled that the revised Prompt Corrective Action (PCA) Framework for Scheduled Commercial Banks (SCBs) was issued on November 2, 2021.

RBI’s action comes after multiple jolts to the financial system in the last three years starting with the collapse of IL&FS in September 2018. The collapse of IL&FS has been followed by the bankruptcy of Dewan Housing Finance Ltd (DHFL) in 2019 and the Kolkata-based Srei Group and Anil Ambani-controlled Reliance Capital this year.” NBFCs have been growing in size and have substantial inter-connectedness with other segments of the financial system. Accordingly, a PCA Framework for NBFCs has also been put in place to further strengthen the supervisory tools applicable to NBFCs.”

The PCA framework shall apply to:

1.     All Deposit Taking NBFCs [Excluding Government Companies],
2.     All Non-Deposit Taking NBFCs in Middle, Upper and Top Layers   [Excluding –

 (i) NBFCs not accepting/not intending to accept public funds; (ii) Government Companies, (iii) Primary Dealers and (iv) Housing Finance Companies].

This rule will come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022, the circular said. A separate circular would be issued in due course with regard to the applicability of PCA Framework to Government NBFCs, it added.