A clarification by the Reserve Bank of India has undercut Tata Sons’ attempt to distance itself from public funds, potentially retaining it in the upper layer of non-bank financial companies (NBFCs), a category that entails tighter regulation and a mandatory listing requirement.
The move complicates matters for the holding company of the Tata group, which has been trying to stay private, especially since RBI introduced its scale-based supervision of non-bank lenders.
Late Wednesday, the central bank said it has received feedback that the mention of ‘indirect public funds’ in its draft non-banking financial company (NBFC) circular of 6 February leads to treating equity investment in an NBFC by group entities having debt as ‘indirect receipt of public funds’.
Per RBI, public funds include funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance and all funds received from external sources.
Mint had reported in 2024 that Tata Sons had turned debt-free in a bid to avoid getting listed under the upper layer regulations and surrendered its registration as a core investment company (CIC). The RBI is yet to communicate its decision on this issue.
A former regulator said the earlier argument was that since Tata Sons does not have public funds, it can give up its CIC registration, not be in the upper layer, and therefore can stay private, does not hold water. A core investment company is a non-bank whose business is to acquire shares and securities, and hold at least 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies.
Under RBI regulations, a core investment company with assets of over ₹100 crore and not availing of public funds can remain unregistered. Those below the ₹100-crore mark can remain unregistered even if they accept such funds.
In its clarification, RBI said that due to use of leverage, multiple layers and fungibility of money, it is difficult to establish with reasonable assurance whether the equity infusion by group entities is from their owned funds. Tata Sons had total assets of ₹1.75 trillion on a standalone basis as on 31 March 2025.
“The recent RBI clarification seems to make sense,” said Abizer Diwanji, founder of strategic advisory provider Neostrat Advisors. “If Tata Sons has any public funds-taking investee as a shareholder, divestment by such shareholder would be imperative for a NBFC declassification.”
Experts said this will, therefore, apply to Tata Sons that has equity investments from Tata Chemicals, Tata Steel, and Tata Power, among other group companies. While Tata Sons repaid debt in 2024 to let go of public funds and therefore extricate itself from RBI regulations, this circular brings it right back to where it started.
As of 31 March 2025, Tata Steel held 12,375 shares of Tata Sons, while Tata Chemicals and Tata Power owned 10,237 and 6,673 shares, respectively.
“Now, Tata Sons will have to go public,” said H.P. Ranina, a senior Supreme Court lawyer. “It may make some representation to the RBI to give them an exemption. But the way things are at present, it looks difficult for them to avoid a public listing.”
While one way for Tata Sons to avoid this could be buying back shares from the group entities, experts said it cannot selectively do so, and then it would require a significant amount of cash to do that.
This development also comes at a time when its largest minority shareholder Shapoorji Pallonji Group is pushing for a listing of the firm. The Shapoorji Pallonji Group owns 18.38% in Tata Sons, nine Tata Group firms own 12.86%, and seven individuals own the remaining 2.87%.
In 2022, RBI had released a list of upper-layer non-banks and said they had three years to get listed. Many from that list, such as Tata Capital and HDB Financial Services, got listed in time. Tata Sons remains the only company in that list to remain private.
Ketan Dalal, managing director at Katalyst Advisors said that while he cannot comment on whether Tata Sons has the money to buy back the shares, the valuation or pricing in the context of buying back shares held by listed Tata companies could become contentious.
“The exit for the Shapoorji Pallonji Group is a different issue altogether, and divorced of that issue, with the latest RBI clarification, the situation seems to be pointing more in the direction of a listing, even due to the regulatory architecture itself,” said Dalal.
Some experts also said there could be other interpretations of the latest RBI circular too. According to Pratish Kumar, partner at JSA Advocates & Solicitors, RBI has not upfront exempted equity investment from group companies from the meaning of access to 'indirect public funds'.
Kumar said this was because of complicated equity structures and fungibility of money.
“However, this raises a query that whether any form of loan by the group company will trigger this registration requirement," he said. "What if such a loan is taken after the investment is made? Therefore, one may argue that this criteria will be subjective rather than objective.”