What changed
RBI has decided to extend the PCA framework, originally introduced for NBFCs in December 2021, to government NBFCs. This applies to all deposit-taking and non-deposit-taking government NBFCs in Middle, Upper, and Top Layers, excluding those in the Base Layer. The framework will take effect from October 1, 2024, using audited financials as of March 31, 2024.
What it means for you
Government NBFCs must now comply with PCA thresholds on capital, asset quality, and profitability, similar to private NBFCs. This could trigger mandatory corrective actions like restricting dividend payments or branch expansion if risk indicators breach limits. Banks lending to these NBFCs should reassess credit risk, as PCA imposition may signal financial stress.
What you must do
- Review your exposure to government NBFCs and update credit risk assessments considering PCA triggers.
- Monitor audited financials of government NBFCs as of March 31, 2024, for early warning signals.
- Engage with government NBFC borrowers to understand their PCA compliance plans and capital adequacy.
- Update internal policies to factor in PCA restrictions when sanctioning or renewing credit lines to these entities.
Who it affects
All deposit-taking government NBFCs, All non-deposit-taking government NBFCs in Middle, Upper, and Top Layers, Banks with exposure to government NBFCs, RBI supervisory teams
When does the PCA framework for government NBFCs become effective?
It becomes effective from October 1, 2024, based on the audited financials of the NBFC as on March 31, 2024, or thereafter.
Which government NBFCs are excluded from this PCA framework?
Government NBFCs classified in the Base Layer are excluded from this framework.
What is the basis for applying PCA to government NBFCs?
The framework will be applied using the audited financials of the NBFC as on March 31, 2024, or subsequent dates.