"Tata Sons, the holding company of the Tata Group, is reportedly evaluating strategies to avoid falling under the upper-layer NBFC (non-banking financial company) classification set by the Reserve Bank of India (RBI). One potential approach is to consider a stock market listing by September 2025, a move that could result in significant financial gains, estimated at around Rs 11 lakh crore in value for the company.
On September 14, the RBI released a list of 15 NBFCs, including Tata Sons, categorized in the upper-layer segment, subjecting them to more stringent regulatory requirements. The central bank classifies NBFCs into four tiers: Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL).
Tata Sons' stock market listing could potentially yield substantial benefits for its shareholders, including Tata Trusts. With an estimated valuation of Rs 11 lakh crore, a 5 percent offering could be valued at approximately Rs 55,000 crore, making it one of India's largest public offerings, as reported.
Earlier, Tata Sons, led by Chairman N. Chandrasekaran, had explored the possibility of obtaining an exemption from the RBI's classification, which was initially issued in September 2022.
As per RBI guidelines, NBFC-ULs are required to adopt a board-approved policy for the enhanced regulatory framework that applies to them and must list within three years of this requirement."
The Reserve Bank of India (RBI) has been strengthening the regulatory framework governing NBFCs in response to the 2018 collapse of IL&FS. NBFC-ULs will now face a more rigorous regulatory regime and are required to enhance the transparency of their financial operations.
In addition to Tata Sons, its indirect subsidiary, Tata Capital Financial Services, is included in the aforementioned list. Tata Sons is in the process of merging Tata Capital Financial Services into Tata Capital, a move aimed at preparing the latter for a potential stock market listing.
Tata Sons stated in its FY23 report, "The simplified corporate structure will result in the formation of a larger, more consolidated entity with a robust capital and asset base, aligning us with the regulatory requirements of the RBI and moving us toward a structure conducive to listing."
In addition to Tata Sons and Tata Capital Financial Services, other entities on the list include LIC Housing Finance, Bajaj Finance, Shriram Finance, L&T Finance, Piramal Capital & Housing Finance, and Cholamandalam Investment and Finance Company.
Indiabulls Housing Finance, Mahindra & Mahindra Financial Services, Tata Capital Financial Services, PNB Housing Finance, HDB Financial Services, Aditya Birla Finance, Muthoot Finance, and Bajaj Housing Finance are also included in the roster.
In line with RBI's criteria, TMF Business Services Ltd (formerly Tata Motors Finance Limited) qualifies for designation as an NBFC-UL based on the scoring methodology. However, in the present evaluation, it is not included in the list of NBFC-UL entities due to its ongoing business restructuring.
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