New Delhi, Dec 14 (IANS): The Reserve Bank of India on Tuesday introduced the prompt corrective action (PCA) framework for non-banking financial companies (NBFCs), and it will come into effect from October 1, 2022, based on the financial position of NBFCs on or after March 31, 2022.

"NBFCs have been growing in size and have substantial interconnectedness with other segments of the financial system. Accordingly, it has now been decided to put in place a PCA Framework for NBFCs to further strengthen the supervisory tools applicable to NBFCs," the central bank said.

The PCA Framework will be reviewed after three years of being in operation.

The measure is applicable to all deposit-taking NBFCs (excluding government companies), all non-deposit taking NBFCs in 'Middle, Upper and Top Layers'.

For both deposit and non-deposit taking NBFCs, capital and asset quality would be the key areas for monitoring under the PCA Framework.

For CICs (core investment company), capital, leverage and asset quality would be the key areas for monitoring under the framework.

"For 'NBFCs-D' and 'NBFCs-ND', indicators to be tracked would be Capital to Risk Weighted Assets Ratio (CRAR), Tier I Capital Ratio and Net NPA Ratio (NNPA). For CICs, indicators to be tracked would be 'Adjusted Net Worth or Aggregate Risk Weighted Assets', 'Leverage Ratio' and 'NNPA'," the RBI said.

NBFC will generally be placed under PCA Framework based on the audited Annual Financial Results or the Supervisory Assessment made by the RBI. However, the central bank may impose PCA on any NBFC during the course of a year in case the circumstances warrant, it added.