Tata Capital could take a hit of Rs 500-800 cr in 3 years: Cyrus Mistry

Provisioning coverage would increase substantially, Mistry said in his annexures to NCLT petition

Cyrus Mistry, former chairman of Tata Sons, had flagged concerns over Tata Capital, the unlisted financial services firm of the Tata group, saying it would have to take a hit of up to Rs 800 crore over the next three years. In his filings with the National Company Law Tribunal (NCLT), Mistry revealed the challenges facing the group's financial services business, an area identified as one of the four clusters that the group would focus on after he took over as group chairman in 2012.

In the annexures to his petition filed with the NCLT, Mistry said Tata Capital faced challenges due to a number of factors which needed to be confronted. “First, we have not adequately leveraged technology, especially for customer-facing processes. A push to go digital is currently underway. Secondly, there will be a diminution in the value of investments and loans which Tata Capital pursued at the behest of the group. Thirdly, the lack of appropriate culture and risk management systems led to high non-performing assets, particularly in infrastructure,” he had written in a letter to N A Sonnawala in early 2016 giving details of Tata group’s businesses which were facing headwinds.

Mistry said over the years, the company reduced its exposure to infrastructure and hired former Bank of Baroda chairman M D Mallya to review its risk management systems. The company’s provisioning coverage would increase from 26% in 2010 to approximately 45% by the end of fiscal 2016, Mistry said warning that there still remained a further potential hit of Rs 500 crore-Rs 800 crore in the next three years, Mistry had warned in January 2016. But by October, Tata Sons ousted Mistry from the board as chairman.

Soon after he was ousted, Mistry had said Tata Capital gave loans to C Sivasankaran’s group that turned bad later. Sivasankaran has denied defaulting on Tata Capital loans saying the loans were covered by shares of Tata Teleservices as collateral given to Tata Capital. “The loan to Siva was under the strong advice of Tata Trusts’ Executive Trustee R Venkataramanan, which has since turned into a non-performing asset. All of this resulted in Tata Capital having to recognise an abnormal size of NPAs,” Mistry said in his letter to Tata Sons’ board members and trustees of Tata Trusts soon after his ouster. Mistry had promised that in fiscal 2017, the company would articulate a more comprehensive strategy for the financial services cluster and present it to the Tata Sons board. 

“Overall, I am optimistic about this cluster, and continue to be of the opinion that if we are able to get all the right building blocks in place, there is the potential to create tremendous long-term value for the group,” promised Mistry.

Statistics submitted to the regulators show that Tata Capital made a profit of Rs 405 crore on operating income of Rs 4,956 crore in fiscal 2016 as compared to a profit of Rs 305 crore on operating income of Rs 4,142 crore in fiscal 2015.