RBI introduces tough PCA framework for NBFCs

The RBI introduced a prompt corrective action framework for large non-banking financial organizations, putting restrictions on para banks whenever vital financial metrics dip below the prescribed threshold.

This brings them almost on a par with banks in terms of supervision and regulatory reach. This follows the regulations and revision in NPA norms brought in by the regulator for the sector.

The PCA framework for NBFCs will come in effect on October 1 next year on the basis of their financial position on or after March 31. It will be applicable for all deposit taking NBFCs and other big ones that sit in the all layers of the central bank’s regulation for the sector.

However, those not taking deposits and with an asset size of less than ₹1,000cr, primary dealers, government owned NBFCs, and housing finance companies are exempt from this framework.

This will be applicable for few NBFCs while the majority of nearly 10,000 entities will be excluded. However, the central bank can take any action irrespective of the size of an NBFC.

The central bank cited the increasing size of the NBFC sector and substantial interconnectedness with different segments of the financial system as the reason for PCA framework.