Introduction: The Reserve Bank of India (RBI) has recently announced an extension of the Prompt Corrective Action (PCA) Framework to include Government Non-Banking Financial Companies (NBFCs). This move aims to ensure the financial stability and health of these institutions.
RBI’s PCA Framework: The PCA Framework was originally introduced by the RBI on December 14, 2021, for Non-Banking Financial Companies. The framework is designed to monitor, assess, and take corrective measures for NBFCs to prevent them from deteriorating further if they exhibit financial stress. It includes various measures and thresholds to gauge the financial soundness of these entities.
Extension to Government NBFCs: The recent announcement by the RBI signifies the extension of the PCA Framework to Government NBFCs, excluding those in the Base Layer. This extension will take effect from October 1, 2024. It will be based on the audited financials of these NBFCs as of March 31, 2024, or subsequent dates.
Objective: The primary objective behind this move is to ensure that Government NBFCs maintain financial discipline, avoid excessive risk-taking, and take timely corrective actions if their financial health starts to deteriorate. This helps in safeguarding the interests of stakeholders and maintaining the overall stability of the financial system.
Compliance and Impact: Government NBFCs falling under the middle, upper, and top layers will be subject to the PCA Framework’s regulations and requirements. These include criteria related to capital adequacy, asset quality, profitability, and leverage.
Conclusion: The extension of the PCA Framework to Government NBFCs demonstrates the RBI’s commitment to ensuring the stability and soundness of the non-banking financial sector. It reinforces the importance of maintaining financial discipline and taking corrective actions when necessary. The move aligns with the RBI’s ongoing efforts to strengthen the regulatory framework for NBFCs and protect the interests of all stakeholders.
Reserve Bank of India
Ref. No. DoS.CO. PPG/SEC.05/11.01.005/2023-24 Dated: October 10, 2023
All Deposit Taking Government NBFCs
All Non-Deposit Taking Government NBFCs in Middle, Upper and Top Layers
Dear Sir / Madam
Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs) – Extension to Government NBFCs
Reserve Bank of India introduced PCA Framework for NBFCs on December 14, 2021. The Framework has since been reviewed and it has been decided to extend the same to Government NBFCs (except those in Base Layer) with effect from October 1, 2024, based on the audited financials of the NBFC as on March 31, 2024, or thereafter.
Chief General Manager