The Reserve Bank of India has extended its prompt corrective action framework to government-owned financial institutions. This framework entails the imposition of business restrictions on lenders with weak financials.
The PCA framework is aimed at placing business restrictions on lenders which have made poor credit decisions. Lenders can exit the PCA framework by improving their financials through capital infusion or better performance.
The PCA framework which was originally applicable only to banks was extended to finance companies in December 2021. However, government-owned finance companies were not included as the RBI had already given time to government NBFCs up to March 2022 to meet minimum capital requirements.
RBI has said that the PCA framework will be applicable to government NBFCs from October 1, 2024 based on the audited financial of the NBFC as on March31, 2024.
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, to restore its financial health, RBI said.
“The PCA Framework is also intended to act as a tool for effective market discipline. The PCA Framework does not preclude the RBI from taking any other action as it deems fit at any time in addition to the corrective actions prescribed in the Framework,” RBI said.
