Upper Layer NBFCs – New set of rules provide a breather to Tata Sons

The day after the RBI issued its NBFC Upper Layer (UL) amendment, one newspaper called it a relief for Tata Sons, while the other newspaper predicted that Tata Sons will have to go for an IPO. The truth, probably, lies somewhere in between.

What the latest NBFC-UL amendment says?

There is one clear shift in the NBFC-UL amendment. The complex multi-factor regulation and classification of UL is being done away with. There will only be a scale-based criteria with the threshold being asset size of ₹1,00,000 crore. Now, the amendment has used an interesting word “May” for the classification. That means, NBFCs with an asset size of ₹1,00,000 crore and above may be considered for inclusion in the NBFC-UL list based on the systemic risk that they pose. Such identified NBFC-UL will be subjected to more stringent regulation, compliance, and disclosure norms compared to other NBFCs.

Updated NBFC-UL list is yet to be released

Interestingly, the last list of upper layer NBFCs was released in January 2025 and that had 15 NBFCs including Tata Sons. Incidentally, Tata Sons was the only core investment company (CIC) in that list. However, along with this amendment, the RBI has not released its updated list of NBFC-UL. Most likely, the RBI will need some time to evaluate the NBFCs on the new criteria and release the list. However, till that time, the last list will continue to be applicable and that includes Tata Sons. Whether the representation made by Tata Sons to RBI will annul the old list till a ruling is announced is open to interpretation. However, it does look like a temporary reprieve for Tata Sons.

Upper layer regulation versus upper layer listing

In the recent interactions between Tata Sons and the RBI, one thing is evident that Tata Sons does not have a problem with more stringent oversight by regulators considering its asset size. They have a problem with being compelled to list the company on the stock exchanges, when the board of directors do not see value in such a listing. To understand this case, one can go back to the Tata Finance fiasco in 2001. Back then, there was a default of ₹615 crore by Tata Finance due to illegal speculative activities by its then CEO, Dilip Pendse. Although Tata Sons was not listed, it gave 100% support to the deposits through cash and guarantees. Tata Sons not being listed, did not change the promise.

Listing decision is best left to the company board

One of the arguments that Tata veterans like Noshir Soonawala have proffered is that Tata Sons was not just the holding company of Tata Group, but it was also the vehicle for substantial charity activities of the group. More importantly, Tata Sons was also the incubator for businesses like airlines, semiconductors, digital etc. Listed company shareholders may not have the patience for back-ended results and that is a very logical argument. After all, when the holding company is delivering the goods while being unlisted, what is the point in forcing the company to go for mandatory listing. Tata Sons is fine with the idea of being subjected to stringent regulatory oversight.