The new regulatory classification comes amid a move by Tata Sons, holding company of India’s biggest and most diversified conglomerate, to deregister itself as an NBFC-UL, having repaid more than Rs 20,000 crore to avoid mandatory local listing.
The new Reserve Bank of India (RBI) classification criteria would replace a framework that combines a top-ten asset ranking with a complex parametric scoring model.
Also Read | RBI says new NBFC classification at the end of month
“With a view to adopting a transparent, simple and absolute criterion for identification of NBFC-UL, it is proposed to replace the existing methodology with an asset-size criterion, which is currently proposed at Rs 1,00,000 crore and above,” the RBI said.
In the draft norms on the scale-based regulatory framework, the RBI added that it would review the Rs 1 lakh crore threshold every five years.
Tata Sons had sought an exemption from being classified as an NBFC-UL as the RBI’s mandate was that an entity qualifying as such must list on local stock exchanges by September 30, 2025. However, the draft norms published Friday do not clarify whether Tata Sons would be required to list under the proposed threshold-based framework.RBI Governor Sanjay Malhotra had on Wednesday told reporters during his post-monetary policy interaction the central bank would come up with a revised framework on NBFCs, when the media sought an update on Tata Sons’ compliance with earlier regulatory directions.
The central bank has also proposed removing the long-standing carve-out that prevented government-owned NBFCs from being classified as upper-layer entities, potentially bringing large state-owned institutions such as NABARD, Exim Bank, SIDBI and the National Bank for Financing Infrastructure and Development under tighter regulatory oversight, similar to those that apply to private-sector peers.
At present, government-owned NBFCs are restricted to the base or middle layers of the scale-based regulatory framework. The proposed change aligns the framework with the principle of ownership-neutral regulation.
Separately, all upper-layer NBFCs would be permitted to use state government guarantees as a credit risk transfer mechanism without any quantitative cap, subject to specified conditions.
Also Read | India’s banks, NBFCs to face rising credit costs, liquidity strain if conflict drags: Report
Entities classified as upper-layer NBFCs are subject to enhanced regulatory requirements, with the list reviewed annually.
As per the RBI’s January 2025 classification, major NBFCs in the upper layer include LIC Housing Finance, Bajaj Finance, Shriram Finance and Tata Sons (as a core investment company), along with Cholamandalam Investment and Finance Company, L&T Finance, Mahindra & Mahindra Financial Services and Aditya Birla Finance.
RBI Still has Some Discretion
RBI Governor Sanjay Malhotra had on Wednesday told reporters during his post-monetary policy interaction the central bank would come up with a revised framework on NBFCs, when the media sought an update on Tata Sons’ compliance with earlier regulatory directions.
With Tata Sons’ asset base estimated at about ₹1.89 lakh crore, the latest norms reinforce expectations that the regulator could nudge the Tata holding entity toward listing.
But what still keeps options open for Tata Sons is the issue of its status as a Core Investment Company, or CIC. It has sought to surrender its licence as a CIC so that it could avoid going public. RBI is yet to decide on that matter.
The central bank, under the powers prescribed by law, still has the discretion to either exempt Tata Sons from the CIC licensing or force it to keep the tag and push it toward listing.
Tata Sons and Tata Trusts did not comment. Highly placed officials close to Tata group said they are studying the RBI draft details.
‘On a Par’
The central bank has also proposed removing the long-standing carve-out that prevented government-owned NBFCs from being classified as upper-layer entities, potentially bringing large state-owned institutions such as NABARD, Exim Bank, SIDBI and the National Bank for Financing Infrastructure and Development under tighter regulatory oversight, similar to those that apply to private-sector peers.
At present, government-owned NBFCs are restricted to the base or middle layers of the scale-based regulatory framework. The proposed change aligns the framework with the principle of ownership-neutral regulation.
Separately, all upper-layer NBFCs would be permitted to use state government guarantees as a credit risk transfer mechanism without any quantitative cap, subject to specified conditions.
Entities classified as upper-layer NBFCs are subject to enhanced regulatory requirements, with the list reviewed annually.
As per the RBI’s January 2025 classification, major NBFCs in the upper layer include LIC Housing Finance Limited, Bajaj Finance, Shriram Finance and Tata Sons (as a core investment company), along with Cholamandalam Investment and Finance Company, L&T Finance, Mahindra & Mahindra Financial Services and Aditya Birla Finance.
The list also includes housing finance and diversified lenders such as Tata Capital, Piramal Capital & Housing Finance, PNB Housing Finance, HDB Financial Services, Sammaan Capital, Muthoot Finance and Bajaj Housing Finance, all of which are subject to heightened regulatory oversight under the scale-based framework.
Tata Sons Financials
According to the FY25 annual report of Tata Sons, the financial assets including investments, cash and equivalents amounted to ₹1.89 lakh crore. Total assets (including financial, nonfinancial) were ₹9.5 lakh crore.
The total equity was ₹3.2 lakh crore (including paid-up capital of ₹40.2 crore, reserves of ₹2.5 lakh crore and noncontrolling stake of ₹64,176 crore). The number of paid-up shares was 4,04,146. This results in book value per share of ₹78.7 lakh or close to ₹79 lakh.
An official close to the group said the entity would study the draft norms and definitions.
“It is too early to gauge anything yet. We will try to understand what the RBI’s classification of assets is and how it compares with the deregistration details,” a highly placed official told ET.
Meanwhile, the Shapoorji Pallonji Group (SP Group), which holds an 18.37% stake in Tata Sons, has been seeking a listing, adding to the pressure on the holding company as it navigates regulatory and stakeholder expectations.
A top official close to the SP Group said the RBI classification of assets has always been the book value of an NBFC and places Tata Sons directly in the listing bracket.
“This reclassification leaves no room for doubt,” said the SP Group official.
Tata Sons had aggressively cleared more than ₹20,000 crore of debt from its balance sheet in FY2024, transitioning from a net debt position to a net cash surplus. This move was strategically aimed at avoiding the mandatory listing requirement imposed by the RBI.
Within the Tata ecosystem, views on the way forward appear divided. Noel Tata, Chairman of Tata Trusts, is understood to be in favour of keeping Tata Sons an unlisted private entity, while other trustees, including Venu Srinivasan, have indicated that a public listing may become inevitable if regulatory constraints persist.
Under the existing framework, NBFC-ULs are identified using a parametric scoring system that assigns 70% weight to quantitative factors such as size, leverage, interconnectedness and complexity, and 30% to qualitative and supervisory assessment.