Tata Sons charting new path to sidestep Dalal Street

In recent weeks, Tata Sons chairman N Chandrasekaran and a core team of executives are understood to have met RBI governor Shaktikanta Das and other officials in this regard.

People close to the development said RBI officials have adopted a tough stance, since giving an exemption to Tata Sons could lead to similar demands from other corporate holding companies.

Following the refusal, Tata Sons has been consulting top legal and finance experts to find a solution. Chandrasekaran is also understood to have apprised Tata Trusts chairman about the matter. Ratan Tata is also Tata Sons chairman emeritus.

Tata Sons and the RBI did not comment on the development.

"Recently, we have seen some very strict stances taken by RBI and any leverage on this issue is highly unlikely, (unless) blanket regulations are modified to create a carve-out for CICs (core investment companies) such as Tata Sons," said Ankita Singh, founder, Sarvaank Associates, a corporate and transactional advisory firm.

To be sure, any plan will need the approval of the Tata Trusts, philanthropic trusts endowed by members of the Tata family, which holds about 66% of Tata Sons. The biggest two of these trusts are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust. Then, there is matter of the Mistry family of the Shapoorji Pallonji Group that holds an 18.4% stake in Tata Sons. That relationship has been strained ever since the late Cyrus Mistry was ousted as Tata Sons chairman in 2016.

The RBI has been tightening the regulatory framework for NBFCs after the collapse of IL&FS in 2018 and introduced scale-based regulations as part of the exercise. These aim to protect the financial system from the spread of contagion.

In 2021, it drew up four categories based on implications for the financial system - base layer (NBFC-BL), middle layer (NBFC-ML), upper layer (NBFC-UL), the most systemically important, and the top layer. Ideally, there are no companies in the top layer, but if risk from any NBFC from the upper layer increases substantially, it would be moved to the top layer. The top 10 NBFCs in terms of asset size would always be in the upper layer. Conditions become stricter as NBFCs go higher up the pyramid.

As per the scale-based regulations, the Tata Group holding company has to prepare for listing by September 2025. Tata Sons is seen as systemically important to the financial system as it borrows heavily from the banking system. According to Spark Private Wealth Management, the market value of Tata Sons' listed investments is pegged at ₹16 lakh crore and that of its unlisted investments is estimated at ₹1-2 lakh crore, counting its forays into semiconductors and batteries.

The deadline will be hard to meet, said Singh of Sarvaank Associates.

"Some major can be anticipated on account of RBI classifying Tata Sons as a CIC in the NBFC's upper layer," she said. "However, the same seems to be unviable given the strict time frame prescribed for listing (October 2025)."

Tata Sons net debt as of September last year was ₹15,200 crore, according to rating company Crisil. Tata Sons has substantial, stable income from group entities, including Tata Consultancy Services (), through dividends and buybacks, which should be sufficient for meeting interest obligations and planned investments. Its cash equivalents were ₹2,000 crore.

Apart from Tata Sons, the RBI also included Tata Capital in the list of NBFC-ULs. While most large NBFCs were expected to be part of the list, investment vehicles being included came as a surprise, some experts said.

One of the persons cited above said the group acknowledges the sensitivity of the matter in terms of financial impact on the economy and the marketplace and that it will likely have to adhere to additional regulations or frameworks suggested by RBI.

Tata Sons converted itself from a public limited company to a private limited one in 2017 during its legal spat with former chairman Mistry.

Besides Tata Sons and Tata Capital, the others in the NBFC-UL list are Shanghvi Finance, , , , L&T Finance, Indiabulls Housing, Piramal Capital & Housing, Cholamandalam Finance, M&M Finance, , Aditya Birla Finance, HDB Finance, , and Bajaj Housing Finance.