Daijiworld Media Network – Mumbai
Mumbai, Aug 7: The Reserve Bank of India (RBI) has retained Tata Sons in its latest list of Upper Layer Non-Banking Financial Companies (NBFC-UL), while clarifying that the company's application to surrender its NBFC licence remains under examination.
The central bank on Thursday released its updated list of 17 Upper Layer NBFCs under the Scale-Based Regulation (SBR) framework, which prescribes stricter regulatory norms for systemically important non-banking financial institutions.
Apart from Tata Sons, the list includes REC, Power Finance Corporation, Indian Railway Finance Corporation (IRFC), Housing and Urban Development Corporation (HUDCO), Bajaj Finance, Shriram Finance, LIC Housing Finance, Tata Capital, Cholamandalam Investment and Finance, Muthoot Finance, Aditya Birla Capital, L&T Finance, Bajaj Housing Finance, HDB Financial Services and Piramal Finance.
The RBI also said PNB Housing Finance and Sammaan Capital, though no longer meeting the latest selection criteria, will continue to remain under the Upper Layer category and be subject to enhanced regulatory requirements.
Clarifying Tata Sons' inclusion, the RBI stated that its presence on the list is "without prejudice" to the outcome of the company's application for de-registration as an NBFC.
The central bank classifies NBFCs into Base Layer, Middle Layer, Upper Layer and Top Layer based on factors such as asset size, complexity of operations, interconnectedness with the financial system and systemic importance.
Entities in the Upper Layer are subject to stricter norms relating to capital adequacy, corporate governance, risk management and regulatory disclosures, aligning their oversight more closely with that of banks.
Tata Sons was first classified as an Upper Layer NBFC in 2022 due to its size and systemic importance as the principal holding company of the Tata Group. Although it functions primarily as a Core Investment Company (CIC) and not as a conventional lender, it falls under the RBI's enhanced regulatory framework.
Following the classification, Tata Sons undertook measures to reduce borrowings, reorganise its financial services operations and applied to surrender its NBFC registration. The RBI has confirmed that the application is still under review.
As a Core Investment Company, Tata Sons mainly holds investments in major Tata Group firms, including Tata Consultancy Services, Tata Motors, Titan Company and Indian Hotels Company, with dividend income constituting a significant portion of its earnings.
The RBI said the Upper Layer classification aims to ensure that financially significant NBFCs operate under stronger prudential norms to safeguard the stability of India's financial system.