Tata Sons may have found a way around RBI’s mandatory listing requirement

The holding company has been in talks with the RBI since December to avoid mandatory listing

After months of negotiations, Tata Sons, the holding company of the Tata Group, is said to have reached an understanding with the Reserve Bank of India to avoid mandatory listing.

In October 2022, RBI’s scale-based regulations classified Tata Sons as a non-banking financial company in the upper layer (NBFC-UL) due to its bank borrowings, requiring it to be listed by September 2025. The NBFC-UL classification mandates that non-banks be listed within three years.

The holding company has been in talks with the RBI since December to avoid mandatory listing, and people familiar with the developments said it has committed to cut debt, which ICRA Ratings reported was Rs 15,173 crore as of January 31.

Tata Sons is said to have set aside Rs 9,000 crore it earned from divesting 0.6 percent of Tata Consultancy Services Ltd in March to repay borrowings. Additionally, it may sell more stakes in some of its subsidiaries and use the proceeds to reduce its debt obligations further.

“By end of FY25, Tata Sons is expected to be a debt-free company and if this happens it would be excluded from NBFC-UL classification,” said a person aware of the matter. The development was first reported by the Economic Times.

Also, to ensure Tata Sons remains debt-free, a criterion it needs to satisfy to be classified as an NBFC- core investment company, it has pledged not to use bank borrowings to support group companies’ debt requirements.

“Tata Sons would only extend bank guarantee or provide letters of comfort should it support debt requirements of its group entities. By doing so, the issue of on-lending doesn’t arise,” said another person who also didn’t want to be identified.

On-lending is a commercial practice in which a parent borrows money to lend to its group companies. This is resorted to when group companies cannot access bank loans on favourable terms.

With these commitments coming through from Tata Sons, it is understood that the RBI may have communicated to the company that it would be exempt from the upper layer classification applicable for non-banks, thereby wriggling out the mandatory need to list.