India’s central bank rejected an application from Tata Sons Pvt. to surrender its status as a shadow lender, according to people familiar with the matter, signaling it expects the company to adhere with rules for such entities that include an initial public offering.
The holding company of the $185 billion Tata Group was seeking a waiver from a stock exchange listing as that would subject it to tighter regulatory oversight and force it to reveal more of the group’s internal dealings. The Reserve Bank of India conveyed its decision in a letter dated Sept. 11 to Tata Sons, local media outlets including Business Standard reported earlier.
The company, which leads the Tata conglomerate, falls within the RBI’s so-called upper-layer non-bank lender category. Its empire spans IT services, steel, hospitality and consumer goods, and it’s helming initiatives such as building a semiconductor factory that are central to Prime Minister Narendra Modi’s ambitions to turn India into a global technology and manufacturing powerhouse.
Spokespersons for Tata Sons and RBI could not be immediately reached for a comment outside of regular business hours.
The rejection compounds the challenges for Noel Tata, chairman of Tata Trusts, which is the majority shareholder of Tata Sons. It has prompted ructions across the sprawling group, including uncertainty over Chairman Natarajan Chandrasekaran’s tenure — he took an abrupt decision to step down after his term ends in February, forcing the group to gear up for a leadership transition.
A key committee of the Tata Sons board now plans to oppose his decision and ask him to reconsider at the board meeting on Sept. 17, to ensure stability during a public listing, the Economic Times reported. Tata Sons did not immediately respond to a request for comment.
The RBI in June rejected industry requests to raise the asset threshold or retain a more complex, risk-based scoring methodology for classifying large non-bank financial companies, a decision that mounted pressure on Tata Sons for a potential listing.
The regulator had opted for a simplified approach centered on balance-sheet size, where shadow lenders with standalone assets of at least 1 trillion rupees ($10.5 billion) will be subject to bank-like regulatory scrutiny, including a requirement to eventually list.
A listing by Tata Sons, however, will be a big boost for the Shapoorji Pallonji Group, which has been looking to monetize its 18.4% stake in Tata’s holding company for years to repay its costly debt.
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