RBI approves Tata Capital's conversion into NBFC investment credit company

The Reserve Bank of India has approved Tata Capital's conversion into an NBFC – Investment Credit Company (ICC) from an NBFC – Core Investment Company (CIC). Tata Capital, an important subsidiary of Tata Sons, recently completed a merger involving Tata Cleantech Capital and Tata Capital Financial Services, as reported in Tata Capital's filings with the bourses.

"This has reference to our letter dated January 1, 2024, informing of the Scheme becoming effective from January 1, 2024, and TCFSL and TCCL having amalgamated with TCL. We wish to inform you that consequent to the Scheme becoming effective and in line with the no-objection letter of the Reserve Bank of India (“RBI”) received for the Scheme, the Company had made an application to RBI for conversion of TCL into NBFC-ICC from NBFC - Core Investment Company (“CIC”) and the Certificate of Registration issued to TCFSL and TCCL were surrendered to RBI and cancelled. The Company has today received the Certificate of Registration from RBI as NBFC-ICC," the company informed the bourses on August 8. 

The recent merger involving Tata Motor Finance Ltd (TMFL), a subsidiary of Tata Motors Finance Holdings, is a significant milestone for the company. The merger, announced in June, has paved the way for a possible listing in the future. The scheme's appointed date is April 1, 2024, and the process is anticipated to take 9-12 months to complete. 

As part of the merger agreement, TCL will issue its equity shares to TMFL shareholders, ultimately leading to Tata Motors holding a 4.7 per cent stake in the merged entity via TMF Holdings.

In its filings, Tata Capital said that after the merger of Tata Cleantech and TCFS, it had made an application to the RBI for converting itself into an NBFC-ICC and, in the interim, based on the no-objection certificate (NOC) received from the RBI for the scheme, the company was operating as an NBFC-ICC and complying with the guidelines applicable to an NBFC-ICC. “The company has now received the certificate of registration as an NBFC-ICC,” the filing said.

Last year, the central bank classified Tata Capital and its parent company Tata Sons Pvt as Non-Banking Financial Companies (NBFC) with an upper layer distinction. As a result, both companies are required to go public by September 2025. 

Despite Tata Sons successfully eliminating its net debt, Tata Capital has consolidated all financial operations under its umbrella and has requested a regulatory certification update from the RBI.

Last week, media reports surfaced suggesting that Tata Capital might fail to meet the September 2025 deadline for the listing of its shares on stock exchanges. The company purportedly requested an extension of one year from the banking regulator to conduct its initial public offering, citing the merger underway between Tata Motor Finance and the lender.

In July, the boards of Tata Motors, Tata Capital, and Tata Motor Finance greenlighted the merger of Tata Motor Finance with Tata Capital utilising an NCLT (National Company Law Tribunal) scheme of arrangement.

“The scheme of arrangement will be subject to the approval of SEBI, RBI, NCLT among others and all shareholders and creditors of TCL and TMFL and will take approximately 9-12 months to complete,” Tata Motors said in a press release announcing the merger. 

In October 2021, the RBI had issued revised regulations under which large non-banking finance companies (NBFCs) were asked to list their shares on a stock exchange within three years, which meant the salt-to-power conglomerate should be listed by September 2025 at the latest in order to comply with this regulation.

The central bank has implemented stricter regulations concerning Non-Banking Financial Companies (NBFCs) since the IL&FS crisis in 2018. The RBI's framework classifies NBFCs into Base Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL), and Top Layer (NBFC-TL). In September 2022, Tata Sons was categorized under the NBFC-UL segment.

As per the RBI circular dated October 22, 2021, NBFCs classified under the Upper Layer (NBFC-UL) must undergo mandatory listing within three years of being designated as such. The disclosure requirements should align with those of a publicly traded company even before the actual listing, following the Board's approved policy of the NBFC, the RBI specified.

Tata Sons was officially identified as an "upper layer" NBFC in 2022, signaling that it is required to become a publicly traded entity within the stipulated three-year timeline. 

Unlisted shares of Tata Capital, a subsidiary of Tata Sons, have experienced a significant increase of over 46% in the grey market over the past six months. This surge has propelled its market capitalisation to $48 billion, up from approximately $33 billion during that period.

Tata Capital experienced a significant increase in stock value from January to May, followed by a brief dip before resuming an upward trend starting in mid-June. Over the course of one year, the stock price almost doubled. Anticipations suggest that Tata Capital may launch its initial public offering (IPO) of shares in the upcoming year.