Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs)

Last updated: 17 December 2021

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The Reserve Bank of India has introduced a Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs) to strengthen supervisory tools and ensure financial health. This framework, effective from October 1, 2022, monitors NBFCs based on key indicators like capital adequacy and asset quality. It outlines specific risk thresholds and a menu of corrective actions that may be imposed if these thresholds are breached, aiming to facilitate timely intervention and restoration of financial stability.

Reserve Bank of India RBI/2021-22/139 DoS.CO.PPG.SEC.7/11.01.005/2021-22 December 14, 2021 All Deposit Taking NBFCs [Excluding Government Companies] All Non-Deposit Taking NBFCs in Middle, Upper and Top Layers1 [Excluding (i) NBFCs not accepting/not intending to accept public funds2;

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FAQ :

The PCA Framework for NBFCs is designed to enable timely supervisory intervention and require NBFCs to take remedial measures to restore their financial health. It also serves as a tool for effective market discipline.

The PCA Framework for NBFCs comes into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.

The framework applies to all Deposit Taking NBFCs (excluding Government Companies) and Non-Deposit Taking NBFCs in the Middle, Upper, and Top Layers (excluding those not accepting public funds, Government Companies, Primary Dealers, and Housing Finance Companies).

For NBFCs-D and NBFCs-ND, the key indicators are Capital to Risk Weighted Assets Ratio (CRAR), Tier I Capital Ratio, and Net NPA Ratio (NNPA). For Core Investment Companies (CICs), they are Adjusted Net Worth/Aggregate Risk Weighted Assets, Leverage Ratio, and NNPA.

An NBFC can exit the PCA Framework if no breaches in risk thresholds are observed for four continuous quarterly financial statements (including one annual audited statement) and based on the RBI's supervisory comfort regarding the sustainability of the NBFC's profitability.

Corrective actions can be mandatory or discretionary. They range from restrictions on dividend distribution and equity infusion to more stringent measures like special supervisory actions, strategy reviews, governance changes, capital enhancements, credit risk management, and operational adjustments.

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Notification No : RBI/2021-22/139 DoS.CO.PPG.SEC.7/11.01.005/2021-22
Published in Community & General
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12208&Mode=0

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