NBFCs Are Now Subject To Prompt Corrective Action

In October 2021, the Reserve Bank of India (RBI) released a scale-based regulatory framework for non-banking financial companies (NBFC) to tackle systemic risks posed by the sector. Continuing its steady march forward in aligning the regulatory frameworks applicable to banks and NBFCs, the RBI issued the prompt corrective action (PCA) framework for NBFCs to enable supervisory intervention on breach of certain risk thresholds. The framework requires NBFCs to initiate and implement remedial measures to restore their financial health in a timely manner. Simultaneously with the scale-based regulatory framework for NBFCs, the PCA framework will become effective from 1 October 2022, and will apply on the basis of the financial position of NBFCs on or after 31 March 2022.