RBI likely told Tata Sons not to engage in financial services activities to avoid listing

tata sons

Tata Sons, the holding company of Tata Group, is set to furnish a critical assurance sought by the Reserve Bank of India, after reaching the last leg of receiving exemption from RBI over listing on stock exchanges.

Highly-placed sources have told Moneycontrol that the RBI has asked Tata Sons to furnish an undertaking that after surrendering the NBFC - CIC or Core Investment Company licence, the company will not be involved in any transaction that involves engaging in financial services, whether directly or otherwise.

This would mean that if Tata Sons were to extend a guarantee to any of its Group companies, it can do so, provided the guarantee does not involve a component of financial reciprocal or consideration. In other words, such guarantees must be on a pro bono basis. Otherwise, the transaction could resemble a bank guarantee, which Tata Sons cannot be involved in, after it surrenders the NBFC-CIC license. That said, there would be no restriction on Tata Sons to provide guarantee to group entities without charging a fee.

Sources also told Moneycontrol that the regulator is insisting on a declaration from Tata Sons to ensure that after surrendering the NBFC-CIC license, the private limited entity does not benefit monetarily though any financial dealings, whether with Group companies or otherwise.

Around April last year, Tata Sons had curbed the practice of on-lending to group entities, after the regulator expressed discomfort. When a holding company takes a loan on its books to lend to its subsidiaries, it is referred to as on-lending in banking parlance.

Emails sent to both Tata Sons as well as RBI seeking comment remained unanswered till the publishing of this article.

“Tata Sons is in the process of furnishing the commitment asked by RBI,” said one of the sources with knowledge of the development.  “Once this is done, Tata Son’s application for de-classification as NBFC-CIC should be granted , post which the need for listing would not arise,” he added.

In October 2022, when RBI came out with scale-based supervision for non-banks, it classified Tata Sons as an upper layer NBFC. This put an obligation on Tata Sons to list on the stock exchanges by September 2025. However, for over a year, the automobile-to-tech-to-coffee behemoth has been working towards remaining an unlisted entity. As a first step to avoid the mandatory requirement of listing, Tata Sons squared off its debt, turning debt-free towards the latter half of last year, including unwinding the loans taken on behalf of group entities.

According to a Right to Information filing, Tata Sons volunteered to surrender its NBFC-CIC license. However, when RBI notified a list of upper layer NBFCs on January 16, it indicated that Tata Sons' application for de-registration is still under examination.