Upper layer NBFCs have to list if Tatas want to shed non-bank lender status, says RBI governor Sanjay Malhotra

Mumbai: In his first public comment since the Reserve Bank of India (RBI) rejected Tata Sons’ bid to shed its non-bank lender status, governor Sanjay Malhotra on Tuesday clarified that upper layer Non-Banking Financial Companies (NBFCs) will have to list their shares if the Tatas want to exit this status.

Malhotra’s statement comes a day after the RBI rejected Tata Sons’ proposal to shed its non-bank lender status, which is essentially a licence to operate as a credit aggregator and distributor. The RBI had asked Tata Sons to list its shares on stock exchanges if it wanted to continue operating in this space.

The RBI governor’s clarification was seen as an attempt to dispel doubts created by the rejection of Tata Sons’ proposal. The Tatas have been keen to shed their non-bank lender status, which is a significant burden, but the RBI has been cautious about granting such licences due to concerns over risk.

Malhotra said that if Tata Sons wants to continue operating in this space, it will have to list its shares on stock exchanges. This means that the company would need to go public and raise capital from investors, which could be a challenging task given the current market conditions.

The non-bank lender status is a significant burden for Tata Sons because it requires the company to hold a huge amount of liquidity, which can be a challenge in times of economic downturn. By shedding this status, the Tatas would be able to reduce their capital requirements and focus on core businesses.

However, the RBI has been cautious about granting such licences due to concerns over risk. The regulator has been monitoring the NBFC sector closely and has taken several measures to improve its stability.

The rejection of Tata Sons’ proposal was seen as a significant blow to the company’s plans to shed its non-bank lender status. However, the RBI governor’s clarification provides some clarity on the situation and helps to dispel doubts about what the future holds for NBFCs.