RBI Subjects NBFCs under PCA Framework
On October 10, the Reserve Bank of India announced that severe regulatory standards under the Prompt Corrective Action (PCA) Framework will apply to government-owned non-banking financial enterprises beginning in October 2024. Being subject to the PCA framework entails restrictions on dividend distribution and earnings remittance, promoters/shareholders infusing equity and reducing leverage, and prohibitions on issuing guarantees or taking on other contingent liabilities on group entities' behalf. On December 14, 2021, the Reserve Bank introduced the PCA Framework for NBFCs.
"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," according to a circular issued by the central bank.
PFC, REC, IRFC, and IFCI are some of the largest government non-banking financial companies (NBFCs).
The PCA framework's goal is to allow supervisory involvement at the proper moment, and it requires supervised entities to initiate and implement corrective measures in a timely way to restore their financial health.