The Reserve Bank Tuesday said it has been decided to extend the Prompt Corrective Action (PCA) framework for NBFCs to Government NBFCs (except those in Base Layer) with effect from October 1, 2024, based on the audited financials as on March 31, 2024, or thereafter.
After the government owned NBFCs are put under the PCA framework there will be not only restrictions on dividend distribution/remittance of profits; but also restrictions on promoters/shareholders to infuse equity and reduction in leverage; and on the issue of guarantees or taking on other contingent liabilities on behalf of group companies.
"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," the RBI circular read.
Some of the major government owned non-banking financial companies (NBFCs) include PFC, REC, IRFC and IFCI.
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The NBFCs have been growing in size and have substantial interconnectedness with other segments of the financial system. Accordingly, the RBI in 2022 decided to put in place a PCA Framework for NBFCs to further strengthen the supervisory tools applicable to NBFCs.
The objective of the PCA Framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health.
The framework is also intended to act as a tool for effective market discipline. It does not preclude the apex bank from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the Framework.
The PCA Framework for NBFCs came into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.
