RBI FAQs may pave way for Tata Son's listing

The RBI’s latest clarification leaves Tata Sons with little room to rely on its debt-free status as a basis for deregistration.

The Reserve Bank of India’s latest FAQs on non-banking financial companies (NBFCs) may have further weakened Tata Trusts’ efforts to keep Tata Sons private, clarifying rules that underpin the central bank’s decision to reject the holding company’s application to surrender its regulatory registration and avoid a stock-market listing.

Tata Sons is registered with the RBI as a "core investment company" (CIC) — a category for holding companies that mainly invest in their own group's businesses. Large CICs, known as "upper-layer" NBFCs, are required to list on the stock exchange. Tata Sons had asked the RBI to let it exit this category entirely, arguing that since it had repaid more than ₹20,000 crore in debt and was now debt-free, it no longer needed to be regulated this way. The RBI rejected that request last week — and the new FAQs explain why.

The RBI has clarified that being debt-free isn't enough to escape the rules. What actually matters is access to "public funds," a term far broader than a company's own direct borrowings. Public funds, the RBI said, include money raised through banks, inter-corporate deposits, commercial paper and debentures — and, crucially, funds accessed indirectly through group and associate companies. So even though Tata Sons itself carries no debt, its group companies' access to bank financing and market funding still counts against it.

Listed Tata companies including Tata Steel Ltd., Tata Chemicals Ltd. and Tata Power Co. Ltd. own stakes in it, making it an indirect recipient of public funds under RBI's definition.

"Public funds are not the same as public deposits," the RBI said in the FAQs.

The FAQ also spells out the criteria for a CIC. To qualify as a CIC in the first place, a company must invest at least 90% of its net assets in group companies, with 60% of that in equity shares. It must also clear what's called the 50:50 principal business test, under which financial assets must account for more than 50% of total assets and income from financial assets must exceed 50% of gross income.

The RBI’s latest clarification leaves Tata Sons with little room to rely on its debt-free status as a basis for deregistration. Instead, the company remains subject to the rules applicable to an upper-layer NBFC, including enhanced regulatory requirements.

For the Tata group, the issue is significant because Tata Sons is the holding company of major listed and unlisted businesses across technology, automobiles, steel, power and financial services. The company has sought to remain privately held, but the RBI’s rejection of its deregistration application and the latest FAQs have reinforced the regulatory pressure it faces.

The FAQs comes at a significant moment for Tata Sons, with the company’s board on Thursday approving a fresh five-year term for N. Chandrasekaran as executive chairman. His current term is due to end on 20 February 2027, according to a statement from Tata Sons. The decision reverses Chandrasekaran’s position last month that he would not seek another term.

The reappointment comes against the backdrop of a debate over the future leadership and structure of Tata Sons. Tata Trusts chairman Noel Tata had favoured beginning the process of finding a successor after Chandrasekaran’s decision to step down.

The fresh five-year term means Chandrasekaran is likely to continue leading Tata Sons as it navigates regulatory requirements applicable to an upper-layer NBFC, including the implications of a potential listing. He has been chairman since 2017 and was previously given a second five-year term.

His reappointment removes, at least for now, the immediate need for a succession process that had been under discussion following his decision to step down.