(T.E.T)
The Reserve Bank of India (RBI) on Tuesday released a prompt corrective action (PCA) framework for non banking finance companies (NBFCs) detailing punitive action against shadow lenders in case their capital adequacy ratio falls or non performing assets (NPAs) rise above a certain threshold. In a notification on its website the RBI said the new framework, the first of its kind for NBFCs will come into effect from October 1 next year.
The central bank’s action comes after multiple jolts to the financial system in the last three years starting with the collapse of IL&FS in September 2018. The collapse of IL&FS has been followed by the bankruptcy of Dewan Housing Finance Ltd (DHFL) in 2019 and the Kolkata based Srei Group and Anil Ambani controlled Reliance Capital this year.
In a notification on its website the RBI said the PCA framework for NBFCs has been put in place “to further strengthen the supervisory tools” applicable to the sector as NBFCs have substantial interconnectedness with other segments of the financial system.
