Economics • Banking & FinanceMedium
Under the regulatory guidelines of the Reserve Bank of India, what is the primary purpose of introducing the 'Prompt Corrective Action (PCA)' framework for non-banking financial companies (NBFCs)?
A. To monitor capital adequacy, asset quality, and leverage to initiate early remedial interventions✓ Correct Answer
B. To provide direct liquidity support during sovereign debt crises
C. To regulate foreign exchange inflows and manage portfolio investments
D. To set uniform deposit interest rates across all retail financial institutions
💡 Solution & Explanation
The Prompt Corrective Action framework allows the Reserve Bank of India to impose restrictions on non-banking financial companies when they breach critical risk thresholds regarding capital adequacy, leverage, and asset quality, facilitating early corrective measures. This supervisory tool prevents small financial distress situations from spiraling into systemic banking crises. Regulatory frameworks and central bank policies are staple topics in banking examinations.
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