India’s central bank reaffirmed a framework for identifying systemically important shadow lenders, a decision that is likely to mount pressure on Tata Sons Pvt. to list its shares.
The Reserve Bank of India Wednesday rejected industry requests to raise the asset threshold or retain a more complex, risk-based scoring methodology for classifying large non-bank financial companies. Instead, the regulator opted for a simplified approach centered on balance-sheet size, where NBFCs with standalone assets of at least 1 trillion rupees ($10.5 billion) will be subject to bank-like regulatory scrutiny, including a requirement to eventually list.
Tata Sons, which falls within the RBI’s so-called upper-layer category, has long resisted a listing due to the additional compliance and disclosure burdens. The firm is the holding company of the $180 billion salt-to-semiconductors Tata Group, and an IPO has ramifications for the entire empire as well as its other billionaire shareholders.
While clarity is still awaited on whether the RBI will allow an exemption for Tata Sons, a listing would unlock value for investors, said Srinath Sridharan, an independent analyst who has been on the board of several non-banking finance companies. “It needs to be seen how and when it happens with full clarity in place.”
Shares of Tata Chemicals, which holds a tiny stake in Tata Sons, rose as much as 5.9% in Mumbai trading, its most since April 28. Shares of Tata Investment Corp. in which Tata Sons holds a 68.5% stake, climbed as much as 3.9%, the most since June 18.
Tata Sons in 2024 had applied to the RBI to surrender its shadow lender registration after aggressively retiring debt and reducing its market-facing financial activities. While that application remains under review, the RBI’s decision to define asset size as a “reasonably good proxy” for systemic risk would keep Tata Sons firmly within the upper-layer NBFC category.
The RBI, in a separate circular last month, said shadow lenders that are accepting money from associates and group entities will be counted as having indirect access to public funds cannot deregister as shadow lenders. And while Tata Sons has pared down its own debt, its affiliated companies, including wholly-owned subsidiary Tata Capital, are still raising money from individuals and institutions. That means Tata Sons cannot de-register as a shadow lender.
A representative for Tata Sons did not respond to a Bloomberg email seeking comment.
The RBI, which oversees the country’s financial system, had first laid down new rules after an Indian shadow lender defaulted on its debts in 2018. It has undertaken steps so that another crisis in the shadow bank sector doesn’t endanger the country’s wider financial system.
Tata Sons was designated an upper-layer non-bank financing company in 2022 after the RBI determined that its scale made it systemically important. The holding company, which sits atop India’s largest conglomerate, has a standalone balance sheet of nearly 1.75 trillion rupees and has spent the past two years seeking to avoid a public listing.
The RBI may still grant non-bank finance companies full or partial exemption from listing, subject to conditions it deems fit, said Ashish Pyasi, a partner at Mumbai-based law firm Aendri Legal.
The central bank also clarified that asset size will be strictly measured using standalone audited balance sheets. Also, to capture rapid shifts in corporate expansion, the threshold will now be reviewed every three years instead of five.
If Tata Sons shares are listed it will have direct impact on India’s Shapoorji and Pallonji Group, which borrowed money through two units by pledging its 18.4% stake in Tata Sons.
Separately, the RBI said that shadow lenders in the upper layer that are fully owned and controlled by the government will not be mandated to list given their developmental mandate.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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