The Reserve Bank of India’s (RBI's) rejection of Tata Sons Pvt. Ltd.’s attempt to deregister stands in contrast to a similar situation faced three years ago by another holding company: Shanghvi Finance.
The company, fully owned by billionaire Dilip Shanghvi and his wife, is a promoter entity set up in 1989. RBI first classified it as an upper-layer non-banking financial company investment and credit company or NBFC-ICC in September 2022, among 16 companies it wanted to go public by September 2025.
RBI regulates 12 categories of non-banks. Companies such as Bajaj Finance Ltd. and L&T Finance Ltd., whose primary business is lending, are categorized as investment and credit companies.
Shanghvi Finance applied to surrender its licence on 9 February 2023, after paying off ₹879 crore debt. This included ₹341 crore of short-term loans in FY22 and the remaining ₹538 crore of promoter loans, according to its filings with the Ministry of Corporate Affairs. Shanghvi Finance was allowed to surrender its licence on 17 May 2023. Tata Sons is the only unlisted entity in the RBI's latest August list of upper-layer NBFCs.
A core investment company (CIC) can remain unregistered on two occasions. First, if it has an asset size below ₹100 crore, irrespective of whether it is accessing public funds or not. Second, if it has an asset size of ₹100 crore and above, but not accessing public funds. Following the RBI approval, Shanghvi Finance is now an unregistered CIC.
Tata Sons faced a different fate. It also paid off the ₹21,813 crore loans and went debt-free before applying to the RBI to deregister CIC in March 2024. After over two years of suspense, the central bank wrote a one-page letter to Tata Sons chief financial officer on 11 September that its request to surrender the registration “cannot be acceded to”. The RBI said the decision was made after “examining all the relevant factors”, without specifying a reason. This means Tata Sons will have to go for an initial public offering unless the RBI reconsiders its decision or if Tata Sons wins a legal challenge.
“Ideally, the RBI should disclose why it wants Tata Sons to list,” said Abizer Diwanji, founder of NeoStrat Advisors LLP. “Based on past interpretations, RBI suggests that even equity investments from companies sourcing public debt would qualify an investee company as a CIC.”
No access to public funds
After paying back debt, Tata Sons does not have access to public funds anymore, but continues to have so-called indirect access. This is because listed Tata companies including Tata Steel Ltd, Tata Chemicals Ltd and Tata Power Co. Ltd hold shares of Tata Sons. RBI defines indirect public funds as “funds received not directly but through associates and group entities which have access to public funds”.
“Decisions to list should be commercial and not regulatory, especially in this instance. The group and the regulator could engage in further discussions to reconsider this decision,” said Diwanji.
While Shanghvi Finance's binding constraint was only ₹341 crore of bank loans, as the ₹538 crore of promoter loans were never public funds, Tata Sons had to exhaust nearly 60 times as much in public borrowings, and continued to have indirect public holdings. In June this year, the RBI introduced a new classification based on size, classifying any non-bank with standalone assets of ₹1 trillion and above in the upper layer. Read along with previous guidelines that mandate listing of upper layer NBFCs, this meant that any NBFC with over ₹1 trillion in assets will have to eventually list.
Exceeding threshold
Tata Sons’ ₹2.01 trillion standalone assets as of 31 March 2026 exceed the RBI threshold.
A second reason that possibly helped Shanghvi Finance is that the promoter investment vehicle was wholly owned by Dilip Shanghvi. Meanwhile, 18.37% of Tata Sons is owned by the Shapoorji Pallonji Group, which bears a debt of ₹55,000-60,000 crore.
A Tata Group executive said concerns about a large company should not be a criterion for forcing the group’s holding company to go public.
“Why should RBI or any regulator force Tata Sons to go public just because there may be concern about SP Group’s financial health,” the executive said. “We have been in discussions with the SP Group to provide them an exit. Surely, an IPO is not the only route to give them (SP Group) an exit”.
A former RBI executive said that while Shanghvi Finance was an investment and credit company (ICC), Tata Sons is a core investment company and RBI would look at both differently even if they are on the same layer.
“It is never a one-size-fits-all approach,” said the former central banker. He said RBI might not have wanted to allow deregistration since there is indirect access to public funds as per regulatory definition. “Looking at the size of Tata Sons, RBI would have taken a call that it wants to retain the ability to assess its access to public funds.”
Others agreed that public funds at the consolidated level might have been taken into account by the regulator.
“In holding companies at a consolidated level — including the group companies — if there is a large funding from public sources, including the banking system, and perhaps where the promoter stake is low, then in public interest, the banking regulator would want to regulate the holdco,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.