Prompt corrective action: A clear framework to help NBFCs remain in shape

There are about 10,000 NBFCs registered with the RBI, but only a few that can potentially face these PCA restrictions

The Reserve Bank of India (RBI) introduced a prompt cor­r­ective action (PCA) framework for the non-banking financial companies (NBFC) on Tuesday. Why was the need for such a framework felt and what will it do? Let’s look into it.

What is a PCA framework?

A prompt corrective action framework, introduced for banks in 2002 and upgraded a couple of times thereafter, works as an early warning signal for banks in stress. The framework gets activated when banks fail to meet certain financial parameters that the regulator has sent as the minimum. In RBI’s own words, the objective of the PCA framework is