Banking News

tata: Tata Sons looks to shed its ‘Upper Layer NBFC’ tag

Tata Sons has been exploring the possibility of being exempted from a Reserve Bank of India (RBI) notification, issued in October 2021, that included it among the top 10 non-banking financial companies (NBFCs) in terms of asset size, said people with knowledge of the matter. Tata Sons is the holding company of the Tata Group companies.

The RBI also included the non-deposit-taking core investment company in the list of 16 NBFCs in the upper layer (UL).

Under RBI guidelines, NBFC-ULs have to implement a board-approved policy for adopting the enhanced regulatory framework applicable to them and mandatorily list within three years of this. Tata Sons chairman N Chandrasekaran met RBI officials in this regard last week, said the people cited above.

The RBI has been tightening the regulatory framework for NBFCs after the collapse of IL&FS in 2018. NBFC-ULs will be subject to a more stringent disciplinary structure and have to be more transparent with their financials.

Tata Sons is a systemically important investment company and borrows heavily from the banking system, said a person with knowledge of the matter.

Tighter rules for NBFC-ULs have been put in place because any uncertainty that affects them will have a proportional impact on the economy, the person said.

“It has so much of financial resources that it has to be extremely careful with its investments,” the person said.Tata Sons did not comment.

The holding company has a complex structure, acknowledged another person with knowledge of the matter.

“Tata Sons, which is a core investment company, holds stakes in several Tata companies and some companies hold stakes in Tata Sons,” the person said. “It is, in that sense, a complicated structure and while it holds tremendous clout in the banking system as a huge guarantor for loans taken by group companies, it does not directly take funds or lend to the public as a traditional NBFC.”

The holding company is home to 29 listed companies, nearly five dozen unlisted ones and hundreds of subsidiaries in 10 sectors. According to Trendlyne, corporate shareholding data filed in December 2022 shows Tata Sons publicly holds 13 stocks with a net worth of over ₹11.9 lakh crore. This refers to shares held by Tata Sons, as per shareholding data filed with the exchanges. Information for the latest quarter tends to have gaps in the data since not all companies may have reported shareholding details yet.

In October 2021, the RBI drew up scale-based regulation as a framework for NBFCs, categorising them into base layer, middle layer and upper layer, the most systemically important. The top 10 NBFCs in terms of asset size would always be in the upper layer.

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