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The Reserve Bank of India (RBI) has introduced the prompt corrective action (PCA) framework for non-banking financial companies (NBFCs). The PCA framework for NBFCs will come into effect from which month?

The Reserve Bank of India (RBI) has introduced the prompt corrective action (PCA) framework for non-banking financial companies (NBFCs). The PCA framework for NBFCs will come into effect from which month? Correct Answer October 2022

The correct answer is October 2022.

Key Points

  • The Reserve Bank of India (RBI) has introduced the prompt corrective action (PCA) framework for non-banking financial companies (NBFCs).
  • The new NBFC framework will be applicable to all deposit-taking NBFCs in the middle, upper and top layers.
  • 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.

Important Points

  • The central bank has defined three risk thresholds for applying prompt corrective action to NBFCs.
  • The objective of the PCA framework is to enable supervisory intervention at the appropriate times.
  • It requires the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
  • An NBFC under PCA framework :
    • On triggering the first threshold - The bank will be restricted on dividend distribution, promoters will be asked to infuse capital and reduce leverage. The central bank will also restrict the issuance of guarantees.
    • On triggering the second threshold - The NBFC will be prohibited from opening branches.
    • On triggering the third threshold - Capital expenditure will be stopped, other than for technological upgradation.

Additional Information

  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956.
  • It does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of the immovable property.
  • It is engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities.

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