Summary:
Tata Chemicals shares surged up to 4% after the RBI retained the ₹1 lakh crore asset threshold for classifying Upper Layer NBFCs. The move renewed speculation around a potential listing of Tata Sons, which is classified as an NBFC and in which Tata Chemicals holds a 3% stake. Investors see significant value in Tata Chemicals' estimated ₹20,000 crore holding in Tata Sons. The development has once again brought Tata Sons' regulatory and listing status into focus.
Tata Chemicals stocks jumped by up to 4% on June 25 when the Reserve Bank of India announced the new regulations for categorizing Non-Banking Financial Companies in the Upper Layer (NBFC-UL) which may necessitate Tata Sons to be listed in the stock market.
The RBI had on June 24 announced new definitions for the systemically important NBFCs and maintained the same threshold of ₹1 lakh crore for the classification as an NBFC-UL. This was done despite requests from the industry for increasing the threshold and has once again focused attention on Tata Sons which comes under the regulatory framework of NBFCs.
Investor mood about Tata Chemicals improved with the news as it holds 3% stakes in Tata Sons. The value of its holding in Tata Sons is estimated to be around ₹20,000 crore.
RBI Retains ₹1 Lakh Crore Asset Threshold
With respect to the new regime, any NBFC having an asset base of ₹1,00,000 crore and more will qualify as candidates for the Upper Layer based on their latest audited balance sheet data. This is in line with the observations of the RBI, wherein it has noted that any such entity will fall under the upper layer category.
Moreover, the central bank has clarified that the threshold for determining the classification of the asset-size parameter will be revisited every three years. It has been observed that the Upper Layer will include only those NBFCs which have been specifically chosen by the RBI due to their size.
Government-Owned NBFCs Included
As yet another important change, the RBI opted for a neutral ownership policy by permitting the eligible government-owned NBFCs to be designated as the Upper Layer. Nevertheless, an exception has been made in case of such government owned entities from the requirement of listing in stock market.
The regulations for the private sector NBFC-UL have not seen any change till now. The requirement that these companies need to get listed in the stock market within three years from the time of designation as the Upper Layer NBFCs continues to put the Tata Sons under the scanner for quite some time.
Tata Trusts Opposes Potential Listing
The matter assumed additional importance recently in early April, when Noel Tata, Chairman of Tata Trusts, is believed to have written a letter to RBI stating his views against the possibility of listing of Tata Sons. As per those privy to this information, Tata Trusts were of the view that listing would change the character of the Tata Group holding company for the worse and jeopardize their philanthropic purposes.
This letter drew attention to the overall consequences of the listing of Tata Sons, which is a pivotal entity in the structure of the Tata Group. The question of whether or not Tata Sons can be listed has become one of the most important and controversial questions in the domain of Tata Trusts.
Market Focus Shifts to Tata Sons
In view of RBI’s decision to fix ₹1 lakh crore as the limit for Upper Layer NBFCs, the focus is now shifting towards the consequences of the same on Tata Sons and its impact on Tata Chemicals and similar firms holding shares in the holding firm of the Tata Group.
