PCA Framework For NBFCs
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16 December 2021 Current Affairs:RBI brought in the PCA, prompt corrective action, a framework for non-banking finance companies (NBFCs).
Highlights:
- NBFCs will face limitations under the PCA framework when parameters like capital adequacy ratio, non-performing assets, and Tier 1 capital fall below the specified levels.
- Banks are already protected under the framework.
- The PCA framework for NBFCs will be executed from October 1, 2022, on the idea of the financial circumstances of NBFCs on or after March 31, 2022.
- PCA framework will be eligible for all deposit-taking NBFC.
- It’ll exclude government NBFCs, housing finance companies, primary dealers, and other non-deposit-taking NBFCs within the upper, middle, and top layers.
- RBI also will restrict the issuance of guarantees or taking other contingent liabilities for group companies.
- When the NBFC hits the danger threshold 2, it’ll be prohibited from opening branches.
- On hitting the danger threshold 3, the cost of NBFC will be stopped.
- PCA will be set when the net non-performing assets are:
- 6-9 percent (risk threshold 1)
- 9-12 percent (risk threshold 2)
- More than 12 percent (risk threshold 3)
