PCA format will also be applicable to NBFCs

The Reserve Bank of India (RBI) has decided to increase surveillance on Non-Banking Finance Companies (NBFCs). Under this, revised guidelines for Prompt Corrective Action (PCA) have been issued on the lines of banks.Under the PCA framework, NBFCs will face restrictions when parameters such as capital adequacy ratio, non-performing assets, and Tier 1 capital will fall below the stipulated levels.Banks are already covered under the framework.The PCA framework for NBFCs will be implemented from October 1, 2022, on the basis of financial position of NBFCs on or after March 31, 2022.PCA framework will be applicable for all deposit-taking NBFC.

However, it will exclude government NBFCs, housing finance companies, primary dealers and other non-deposit taking NBFCs in the upper, middle, and top layers.Under the framework, RBI will also restrict issuance of guarantees or taking other contingent liabilities for group companies. When the NBFC will hit the risk threshold 2, it will be prohibited from opening branches. On hitting the risk threshold 3, capital expenditure of NBFC will be stopped.

When will PCA be imposed?

PCA will be imposed when the net non-performing assets is in between:

1. 6-9 percent (risk threshold 1)
2. 9-12 percent (risk threshold 2)
3. More than 12 percent (risk threshold 3)