The Reserve Bank has said the strict supervisory norms under the prompt corrective action (PCA) framework will apply to government-owned non-banking financial companies (NBFCs) from October 2024.
The Reserve Bank introduced the 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,” the central bank said in a circular.
Some of the major government non-banking financial companies (NBFCs) include PFC, REC, IRFC and IFCI.
What Is Prompt Corrective Action Framework?
Under the PCA framework, banks with weak financial metrics are put under watch by the RBI putting restrictions on some of their activities. The RBI introduced the PCA framework in 2002 as a structured early-intervention mechanism for banks that become undercapitalised due to poor asset quality, or vulnerable due to loss of profitability.
What Does It Mean To Bring Govt-Owned NBFCs Under PCA Framework?
Being put under the PCA framework means restrictions on dividend distribution/ remittance of profits; promoters/ shareholders to infuse equity and reduction in leverage; and restrictions on the issue of guarantees or taking on other contingent liabilities on behalf of group companies.
The objective of the PCA framework is to enable supervisory intervention at the appropriate time and requires the supervised entities to initiate and implement remedial measures in a timely manner so as to restore their financial health.
(With Inputs from PTI)
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