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NBFCs: RBI Announces Big Change, Issues Prompt Corrective Action Framework. Details Here

The Reserve Bank of India (RBI) on December 14 issued prompt corrective action (PCA) framework for non-banking finance companies (NBFCs) by introducing three risk threshold categories. “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 RBI said.

The framework will apply to all deposit-taking NBFCs, excluding government companies, all non-deposit taking NBFCs in middle, upper and top layers, the RBI said.

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, the RBI said.

The RBI will impose PCA on NBFCs if there is any breach of any risk threshold, the regulator said. “For NBFCs-D and NBFCs-ND, capital and asset quality would be the key areas for monitoring in PCA Framework. For Core Investment Companies, capital, leverage and asset quality would be the key areas for monitoring in PCA framework,” said RBI.

“For NBFCs-D and NBFCs-ND, indicators to be tracked would be capital to risk Weighted Assets Ratio (CRAR), Tier I Capital Ratio and Net NPA Ratio (NNPA). For CICs, indicators to be tracked would be adjusted net worth/aggregate risk weighted assets, leverage ratio and NNPA, RBI further mentioned,” it added.

The RBI will then impose restrictions on various business operations and will conduct special inspections and targeted scrutiny of the company. The PCA Framework will be reviewed after three years of being in operation.

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