According to India Ratings and Research, the prompt corrective action (PCA) framework for non-banking financial companies (NBFCs) will bring further regulatory parity between banks and non-banks (Ind-Ra).
As a result, the ratings agency stated that the trend will be supported by increased NBFC size and scale, as well as the interconnectedness with banks, as well as scale-based regulation implemented in October 2021 and asset quality classification alignment implemented in November 2021.
The Reserve Bank of India recently introduced the PCA framework for NBFCs, which will take effect on October 1, 2022, based on the financial position of NBFCs as of March 31, 2022.
"It also establishes a regulatory course of action in the event that certain parameters are violated, acting as an early warning signal." "In the event of a breach, the NBFCa's performance on risk threshold parameters will be measured over four consecutive quarters in order to declassify the NBFC placed under PCA." According to Ind-Ra, NBFCs that breach any of the risk thresholds have until March 2022 to correct their course, as the guidelines will be based on year-end numbers.
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