The Reserve Bank of India (RBI) has introduced a PCA framework for large non banking financial companies (NBFCs) with effect from October 2022, putting restrictions whenever vital financial metrics dip below the prescribed threshold. What is PCA?
Show answer & explanation
Correct answer: D
Explanation
The correct answer is option 4 i.e. Prompt Corrective Action.
The Prompt Corrective Action (PCA) framework is a supervisory tool introduced by the Reserve Bank of India (RBI) to ensure early intervention and initiate corrective measures when financial institutions, including Non-Banking Financial Companies (NBFCs), show signs of financial stress. Extended to large NBFCs from October 2022, the PCA framework sets specific thresholds for key indicators such as capital adequacy, asset quality, and leverage. If these metrics fall below the prescribed levels, the RBI can impose restrictions on operations like dividend distribution, expansion, or management compensation. The aim is to restore the financial health of the institution and safeguard systemic stability.