Statsguru: Six charts explain RBI's new PCA framework for NBFCs

The RBI, last week, issued a prompt corrective action (PCA) framework for non-banking financial companies (NBFCs). It follows the central bank's announcement of a new framework for scheduled commercial banks (SCBs) announced last month. There was an incongruity in the classification of non-performing assets (NPAs), which the RBI has addressed with the new framework.

Although NBFC lending has still not reached proportions achieved by banks, it has risen over the last few years. As a proportion of gross domestic product (GDP), non-food credit of NBFCs increased from 8.6 per cent in 2012-13 to 11.6 per cent in 2019-20, whereas bank credit as a proportion of GDP declined from 51.9 to 50.7 per cent during the same period (chart 1). According to RBI data for January 2021, while there were 9,507 NBFCs, only 64 were deposit-taking (NBFC-D). Among the non-deposit-taking NBFCs (NBFC-ND), systemically important (NBFC-ND-SI) or the ones with asset size greater than Rs 500 crore were only 292 (chart 2).

However, in terms of asset size, systemically important NBFCs account for 83 per cent of total assets, followed by 14.5 per cent share of deposit-taking NBFCs (chart 3). While the RBI rules include both these categories, an exemption has been given to government entities in the space. In the case of NBFC-ND, NBFCs not accepting or not intending to accept public funds, primary dealers and housing finance companies were also excluded from PCA requirements. Analysis shows that in terms of asset size, 43.3 per cent of NBFC-ND-SI and 10.5 per cent of NBFC-D were government companies (chart 4).

Moreover, an analysis of the performance of NBFCs during the pandemic shows that NBFC-ND-SI grew faster than NBFC-D (chart 5). While the new PCA is expected to increase the gross NPAs, NBFCs may still end up with lower NPAs than SCBs and will have better performance ratios. Even though higher than previous years, NBFCs’ gross NPA in March 2021 was 6.4 per cent — 40 bps lower than last year. The capital adequacy ratio or capital to risk assets ratio was at a six-year high of 25 per cent in March 2021 (chart 6).

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