Reserve Bank of India rejects Tata Sons’ bid to avoid listing, tightening rules on indirect public funds and complicating its deregistration plan., Companies, Times Now

Did RBI’s New Rule Just Force Tata Sons Closer To An IPO?

N Chandrasekaran (Source: tcs.com)

Photo : Times Now Digital

India’s central bank, Reserve Bank of India, has effectively shut down a key argument that Tata Sons used to avoid a stock market listing, delivering a significant setback to the conglomerate’s restructuring plans. In fresh directions issued on Wednesday, April 29, the regulator made it clear that funds raised indirectly through group entities cannot be excluded when assessing access to public money. This clarification directly challenges Tata Sons’ position that it does not rely on such funding.

The central bank stated that equity investments flowing from group firms and affiliates, especially those with access to debt markets, must be treated as indirect public funds. This interpretation dismisses requests from certain market participants who had argued for a narrower definition.

The updated rules, which will come into force on July 1, underscore that tracing the origin of funds is not straightforward. According to the regulator, companies often mix borrowed and internal capital, making it difficult to isolate the true source of equity inflows.

The ruling directly impacts Tata Sons’ March 2024 attempt to exit its classification as a core investment company (CIC), a type of non-banking financial company (NBFC). The firm had argued that it had no exposure to public funds after repaying its standalone borrowings.

However, legal experts point out that this claim no longer holds, as several of its key subsidiaries, including Tata Steel, Tata Motors, Tata Power, Indian Hotels Company and Tata Chemicals, have accessed debt markets while channelling funds to the parent entity.

Historical Structure Under Scrutiny

The roots of this indirect access date back to a 1995 rights issue. At the time, Tata Trusts, the largest shareholder, passed on its subscription rights to listed group companies. These entities, which themselves tap public markets, acquired a stake in Tata Sons, creating a long-standing link to public funds.

The central bank has outlined a limited pathway for NBFCs seeking deregistration, but only for firms with assets below Rs 1,000 crore and no exposure to public funds. Tata Sons, with standalone assets estimated at Rs 1.75 lakh crore, is far above this threshold.

Notably, Tata Sons remains the only entity classified in the RBI’s upper-layer NBFC category, introduced in September 2022, that has yet to meet mandatory listing norms. The potential IPO has also triggered differing views within Tata Trusts, with chairman Noel Tata opposing the move, while vice-chairmen Venu Srinivasan and Vijay Singh support it.