RBI's New Rule Leaves Tata Sons' NBFC Exit Undecided

The Reserve Bank of India said on Tuesday, June 30, that merely submitting documents does not automatically lead to cancellation of a Certificate of Registration (CoR) for non-banking financial companies (NBFCs). The central bank clarified that it holds the right to either approve or disallow such cancellation applications, rather than process them automatically.

For Tata Sons, this means the RBI will now have to decide whether to approve the company's application to surrender its NBFC-Core Investment Company (CIC) licence, according to media reports. Until the RBI takes a call on this application, upper-layer norms, including the requirement to list on stock exchanges, will continue to apply to Tata Sons.

On the same day, the RBI issued a separate circular clarifying what constitutes indirect receipt of public funds. According to the central bank, this refers to funds received not directly, but through associate companies or group entities that themselves have access to public funds.

This clarification is significant for Tata Sons. The RBI had first introduced this definition in a circular dated April 29. However, when the RBI released a fresh set of guidelines for NBFCs on June 24, the definition of "indirect access to funds" was missing from that circular. The June 30 notification appears to reinstate the same definition that was part of the April 29 circular. The new guidelines came into force from July 1.

Tata Sons does not have direct access to public funds, having repaid all its debts in 2024. However, the RBI classifies Tata Sons as a Core Investment Company (CIC) with indirect access to funds, since listed group entities such as Tata Motors and Tata Steel hold stakes in the company.

In 2022, the RBI had released a list of upper-layer NBFCs and given them a three-year timeline to get listed on stock exchanges. Tata Sons filed an application to surrender its CoR in 2024, a move seen as an attempt to avoid this listing requirement. Last week, the RBI's new guidelines reiterated that any NBFC with an asset size of Rs 1 lakh crore or more will continue to be classified in the upper-layer category.