Reserve Bank of India (RBI) Governor Sanjay Malhotra has signaled that Tata Sons, the holding company of the Tata Group, will likely need to list on stock exchanges. This indication follows the RBI's classification of Tata Sons as a Core Investment Company (CIC) under its Non-Banking Financial Company (NBFC) – Upper Layer framework.
Speaking at the NDTV World Summit in New Delhi, Malhotra clarified that entities designated as upper-layer NBFCs are mandated to list. This move comes after the RBI rejected Tata Sons’ application for deregistration as a CIC and directed the conglomerate to adhere to the applicable regulatory guidelines.
RBI's Stance on Core Investment Companies
Malhotra underscored the necessity for NBFCs and CICs, including major entities like Tata Sons, to register with the RBI. He highlighted the significant systemic risks associated with their operations, particularly concerning their access to and leveraging of public funds. These companies often sit atop group structures, using the balance sheets of their subsidiaries to secure and return funds, thereby putting public funds at risk.
“And if it is in the upper layer (of the NBFC category), then it is required to list,” Malhotra stated, explaining the regulatory rationale. He further elaborated, “They sit on top of group companies where they leverage funds… they can leverage funds, they do leverage funds, and they use the balance sheets of the group companies to return those funds.”
The Governor stressed that public funds, whether sourced through banks, corporate bonds, or other instruments, are exposed to risk when CICs engage in such activities. Consequently, registration is mandatory for CICs that have direct or indirect access to public funds, with exemptions only for those without such access.
Internal Divisions Over Listing
The prospect of a stock market listing for Tata Sons has reportedly sparked internal disagreements. While the RBI's directive implies a listing, Tata Trusts, the primary shareholder of Tata Sons, has historically preferred the holding company to remain unlisted. Chairman of Tata Trusts, Noel Tata, is noted to have opposed the listing.
Despite this opposition, Tata Sons' directors reportedly decided to proceed with the listing at a board meeting on September 17, acknowledging the RBI's directive. Further complicating matters, Tata Trusts submitted a proposal on September 28 to merge Tata Electronics Systems Solutions Pvt Ltd (TESS) and Tata Consulting Engineers (TCE) with Tata Sons Pvt Ltd. This proposed merger could potentially alter Tata Sons’ structural classification and its regulatory obligations.
Adding to the tensions, Tata Sons was unable to hold its annual general meeting due to a lack of quorum, following a restraining order imposed by the Charity Commissioner on Sir Ratan Tata Trust. This order prevented the trust from recommending a joint representative, further escalating the ongoing debate surrounding the listing issue within the venerable conglomerate.