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    Question

    The Reserve Bank of India (RBI) in Dec, 2021 introduced a prompt corrective action (PCA) framework for large non-banking financial companies (NBFCs). Find the correct answer/s for this.

    a. The framework is applicable to NBFCs an asset size of > or = to Rs 1,000 crore

    b. Housing finance companies are excluded from this.

    c. There are three risk thresholds in the PCA framework for NBFCs.

    d. It is applicable on government-owned NBFCs too.

    A only a and b Correct Answer Incorrect Answer
    B only a and d Correct Answer Incorrect Answer
    C only a, b and c Correct Answer Incorrect Answer
    D Only a, c and d Correct Answer Incorrect Answer
    E All are correct Correct Answer Incorrect Answer

    Solution

    An NBFC under PCA framework, caused by triggering the first threshold, will be restricted on dividend distribution, promoters will be asked to infuse capital and reduce leverage. The RBI will also restrict issuance of guarantees or taking other contingent liabilities on behalf of group companies, in case of core investment companies. After hitting risk threshold 2, the NBFC will be prohibited from opening branches, while on risk threshold 3, capital expenditure will be stopped, other than for technological upgradation.

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