Tata Sons, the holding company of the Tata Group, is said to be engaged in a restructuring effort aimed at aligning with regulations set by the Reserve Bank of India (RBI). According to The Economic Times, the RBI has reportedly rejected any leniency regarding the mandatory listing of non-banking finance companies (NBFCs) categorized in the ‘upper layer.’ This designation applies to NBFCs deemed systemically important with significant ties to the financial system. In response, Tata Sons is exploring various avenues to ensure compliance, as confirmed by an official familiar with the matter speaking to ET.
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As part of its compliance strategy, Tata Sons is reportedly contemplating transferring its stake in the financial services venture Tata Capital to a different entity, as per the report. This move is speculated to be a key factor contributing to Tata Sons’ classification in the ‘upper layer’ category. Such categorization could potentially impact the company’s borrowing expenses and other related aspects.
The restructuring plan undertaken by the company is focused on achieving compliance with RBI regulations while mitigating any adverse effects on its operations.
Under RBI guidelines, a ‘core investment company’ with assets below Rs 100 crore and without public fundraising can avoid being classified as a CIC or an ‘upper layer’ NBFC, thus eliminating the need for public listing. This exemption provides these entities with a straightforward means to circumvent the regulations.
Tata Sons, on the other hand, is registered as a CIC with the RBI and has been classified as an ‘upper layer’ NBFC, which mandates the company to follow a strict regulatory structure and requires it to list on the public market within three years of being notified. The RBI issued a notification to this effect for Tata Sons in September 2020.