NEWS

The Reserve Bank of India announced a Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs), to strengthen applicable supervisory tools.

DETAILS

• In line with the PCA framework for banks
• To help improve their financial condition and governance issues.
• Will apply to all deposit-taking NBFCs, all non-deposit taking NBFCs in the middle, upper and top layers, including investment and credit firms, core investment firms, infrastructure debt funds, infrastructure finance firms and microfinance institutions.
• Excluded NBFCs not accepting or not intending to accept public funds, primary dealers and housing finance firms, along with government-owned ones
• Objective – enable supervisory intervention at the appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health

ABOUT PCA

• Framework under which banks with weak financial metrics
• Introduced by RBI in 2002
• Structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
• Aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.
• Invoked when certain risk thresholds are breached. There are three risk thresholds which are based on certain levels of asset quality, profitability, capital and the like.
• There are two type of restrictions, mandatory and discretionary.