Mumbai: To further strengthen the supervision on non-banking entities (NBFCs), the Reserve Bank on Tuesday issued revised guidelines on a Prompt Corrective Action (PCA) framework for such companies, excluding government-owned ones, effective from October 1, 2022, on the lines of what it had introduced for banks in 2002.
The RBI came up with stricter supervisory norms under the PCA framework for banks after their bad loans mounted and balance-sheets bled badly. This involved restricting them from fresh lending, brand opening and, hiring, among others.The RBI said the revised PCA framework is also applicable to all deposit-taking non-banking financial companies (NBFCs), all non-deposit taking NBFCs in the middle, upper and top layers, including investment and credit companies, core investment companies, infrastructure debt funds, infrastructure finance companies and microfinance institutions.However, it has excluded NBFCs not accepting/not intending to accept public funds, primary dealers and housing finance companies along with government-owned ones.Being put under the PCA framework means restrictions on dividend distribution/remittance of profits; promoters/shareholders to infuse equity and reduction in leverage; restrictions on issue of guarantees or taking on other contingent liabilities on behalf of group companies, the RBI said.
Special supervisory actions will be taken in matters regarding breach in strategy, governance, core capital, credit risk, market risk, HR, and profitability, it added.The mandatory curbs also include restrictions on branch expansion, capital expenditure (other than for technological upgrade within board approved limits) and curbs on reduction in variable operating costs.
Besides, the central bank can even supersede the Board under the RBI Act, appoint an administrator and send the NBFC to NCLT for insolvency resolution.  AGENCIES