- RBI revised NBFC framework, removing the ‘public funds’ criterion.
- Asset size now determines upper-layer status, still impacting Tata Sons.
- Tata Sons seeks deregistration, aiming to avoid mandatory stock listing.
The Reserve Bank of India’s (RBI) latest overhaul of its framework for classifying upper-layer non-banking financial companies (NBFCs) has eased one regulatory concern for Tata Sons. However, the larger question that has loomed over the conglomerate for nearly four years, whether it will eventually have to list on the stock exchanges, remains unanswered.
While the central bank has removed one criterion that had increased Tata Sons’ regulatory obligations, it has simultaneously reinforced the importance of asset size in determining upper-layer classification. As a result, analysts believe the latest changes provide only limited relief, with the company’s listing dilemma still resting squarely with the regulator.
RBI Drops ‘Public Funds’ Criterion
Under the final guidelines issued on Wednesday, the RBI removed the ‘access to public funds’ parameter from the framework used to determine upper-layer NBFC classification, reported Financial Express.
The change carries significance for Tata Sons because the central bank had earlier maintained that equity investments made by group entities using their own funds could still be regarded as indirect public funds. Since Tata Group companies collectively own around 13-16 per cent of Tata Sons, that interpretation had increased the holding company’s regulatory obligations.
By removing this criterion altogether, the RBI has effectively accepted part of the industry’s concerns, offering Tata Sons some regulatory relief.
Asset Size Now Takes Centre Stage
Despite that concession, the company’s biggest regulatory challenge remains firmly in place.
Instead of relying on the earlier scoring model that evaluated multiple parameters such as leverage, interconnectedness, complexity and size, the RBI has now made asset size the principal benchmark for determining whether an NBFC falls within the upper regulatory layer.
The threshold continues to remain at Rs 1 lakh crore.
For Tata Sons, whose standalone assets stood at around Rs 1.75 lakh crore in FY25, this effectively strengthens the case for its inclusion in the upper layer.
Ironically, analysts note that while the framework has been simplified, it leaves Tata Sons with even less room to argue against its classification. Under the earlier methodology, the company could contest its position using several parameters. The revised rules leave asset size as the dominant consideration.
The industry had recommended increasing the threshold to Rs 2.5 lakh crore while retaining the multi-parameter approach. However, the RBI rejected those suggestions, stating that the existing Rs 1 lakh crore benchmark reflects the current structure and financial profile of India’s NBFC sector.
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Why the Listing Question Still Matters
The upper-layer designation carries significant regulatory implications.
In September 2022, the RBI classified both Tata Sons and Tata Capital as upper-layer NBFCs. Entities falling within this category are required to list within three years.
While Tata Capital has already completed its listing process and is expected to debut on the exchanges shortly, Tata Sons has not announced any comparable move.
The latest RBI circular offers no specific exemption for Tata Sons and does not create any carve-out for Core Investment Companies (CICs) that would automatically exempt them from upper-layer classification or the associated listing requirement.
As a result, uncertainty surrounding a potential Tata Sons IPO continues.
Can Deregistration Offer an Exit?
Instead of pursuing a listing, Tata Sons has taken another route.
The company has applied to surrender both its NBFC and Core Investment Company registrations, a move that would effectively remove it from the regulatory framework that currently requires upper-layer entities to list.
Earlier this year, RBI Governor Sanjay Malhotra confirmed that the application was under examination.
More recently, during the monetary policy press conference, the Governor reiterated only that the revised upper-layer NBFC list would be released separately, without commenting on Tata Sons’ deregistration request.
Analysts believe this application remains the company’s strongest avenue for avoiding a public listing.
How the New Framework Will Work
The RBI has clarified that upper-layer NBFCs will continue to be identified every year based on prescribed criteria requiring enhanced regulatory supervision.
Compliance with upper-layer regulations will begin from the date the RBI formally notifies the revised NBFC-UL list.
The central bank last updated that list on January 16, 2025.
Another notable change is the frequency of asset-size reviews. Given the rapid expansion of the NBFC sector, the RBI has shortened the review cycle from five years to three years.
It has also confirmed that asset size will now be assessed solely on a standalone basis.
Government-Owned NBFCs Get Partial Relief
The final guidelines also address concerns raised by government-owned financial institutions.
Several stakeholders had sought exemptions for government NBFCs engaged in infrastructure and developmental financing, arguing that their specialised business models warranted separate treatment under the regulatory framework.
The RBI has decided that eligible government NBFCs will continue to remain part of the upper layer.
However, it has relaxed one important requirement by increasing the Large Exposure Framework (LEF) limit for upper-layer NBFC-Infrastructure Finance Companies from 35 per cent to 45 per cent of their eligible capital base.
Additionally, upper-layer NBFCs that are fully owned and controlled by the government will not be required to list.
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Industry Suggestions That RBI Turned Down
While the RBI accepted certain industry representations, it rejected several others.
Among the proposals that did not find favour were demands to exempt subsidiaries of listed companies from listing requirements, extend listing timelines, create a separate regulatory regime for government-owned NBFC-IFCs, and modify rules relating to CET1 capital requirements and standard asset provisioning for derivatives exposure.
A Partial Win, But No Final Clarity
The revised framework gives Tata Sons relief by eliminating one regulatory trigger that had added to its compliance burden.
However, the central issue remains unresolved.
With the Rs 1 lakh crore asset threshold retained and no specific exemption granted to Tata Sons, the company’s future listing plans continue to depend on how the RBI ultimately decides its pending deregistration request.
For now, the latest guidelines simplify the regulatory framework, but stop short of settling one of India’s most closely watched corporate questions.
