Prompt Corrective Action (PCA) Framework for NBFCs

Prompt Corrective Action (PCA) Framework for NBFCs

Part of: Prelims and GS-III -Economy

Context The Reserve Bank of India announced a Prompt Corrective Action (PCA) Framework for Non-Banking Financial Companies (NBFCs), to strengthen applicable supervisory tools.

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Key takeaways 

• This will take effect October 1, 2022.
• This is in line with the PCA framework for banks 
• Aim is to help improve their financial condition and governance issues.
• The framework will apply to all deposit-taking NBFCs, all non-deposit taking NBFCs in the middle, upper and top layers, 
• It has excluded NBFCs not accepting or not intending to accept public funds, primary dealers and housing finance firms, along with government-owned ones.

Non-Banking Financial Company

• It is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. 
• The most important difference between non-banking financial companies and banks is that NBFCs don’t take demand deposits.