RBI Extends PCA Framework to Govt NBFCs from Oct 2024

Through notification dated October 10, 2023, the Reserve Bank of India announced its decision to extend the Prompt Corrective Action (PCA) Framework to Government Non-Banking Financial Companies (NBFCs) except those in the base layer. The same will be operative with effect from October 1, 2024.

The framework will apply based on the audited financials of the NBFC as on March 31, 2024, or thereafter.

Earlier, the PCA framework applied only to banks. Considering the growth of NBFCs and their impact on other segments of the financial system, a new PCA framework was made applicable to NBFCs in December 2021. As per this framework, NBFCs could be placed under the PCA based on the company’s audited annual financial results or the supervisory assessment made by the RBI. Any breach of the prescribed risk thresholds will result in supervisory intervention, enabling the RBI to take appropriate action, including the corrective actions enumerated in the framework.

The corrective actions are divided into mandatory and discretionary actions. Mandatory actions such as restrictions on the distribution of dividends, issue of guarantees, etc. are taken by the RBI based on the thresholds breached. Further, the RBI has the discretion to take various actions, such as filing an insolvency application under the Insolvency and Bankruptcy Code, 2016, removal of managerial persons under the RBI Act, imposition of restrictions on investment activities, etc.

However, it is clarified that these corrective actions are not exhaustive, and the RBI can take any measure as it deems fit.