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PCA framework for NBFCs

News: The RBI has issued the Prompt Corrective Action (PCA) Framework for non-banking financial companies (NBFCs) as they are growing in size and segments of the financial system. The PCA Framework for NBFCs has also been put in place to further strengthen the supervisory tools applicable to NBFC. The central bank will monitor breaches in three indicators-- CRAR, Tier I ratio and NNPAs, including non-performing investments-- and three risk thresholds within them for imposing PCA on deposit and non-deposit taking NBFCs, according to Business Line. The framework would be applicable from October 2022 onwards.

Views: We believe this would be structurally beneficial for NBFCs as this would help strengthen and maintain financial position in the long run. However, we may see near term negative impact on NBFCs due to perceived stricter norms.

Impact: Negative