Boards of two Tata Motors finance companies to consider merger next week

Merger is part of Tata group plan to bring similar businesses under a single umbrella like Tata Steel's merger of seven subsidiaries with itself to consolidate its metals and mining businesses

As part of Tata group's plans to bring synergies across various group companies, the boards of Tata Motors Finance Solutions and Tata Motors Finance (TMFL) – both subsidiaries of Tata Motors Finance Holdings  – are meeting separately on October 3 to consider a plan to merge their lending operations. According to the plan, Tata Motors Finance Solutions will acquire TMFL’s non-banking finance business on a going concern basis, as per notices to debt investors.

Tata Motors Finance Holdings, a subsidiary of Tata Motors, holds 97 per cent stake in TMFL while the rest is held by Tata Motors Finance Solutions. As of March this year, TMFL’s loan book was  Rs 28,204 crore while TMFSL’s loan book was Rs 8,085 crore. “The merger is part of Tata group plans to bring similar businesses under a single umbrella like the Tata Steel merger of seven subsidiaries with itself to consolidate its metals and mining businesses,” said an official of a large institution, asking not to be quoted. 

When contacted, a Tata Motors spokesperson said all the lending activities are done through its two NBFCs –  new vehicles through TMFL and used vehicles/channel finance and corporate finance through TMFSL. “In order to simplify the structure, the lending business of TMFL is being demerged and transferred to TMFSL so all lending activities happen through one entity,” the spokesperson said.

The Tata group is planning to reduce the number of its listed entities from 29 to 15 in order to consolidate operations under one company and take advantage of synergies. The Tata group’s listed companies and the group holding company Tata Sons have several unlisted entities across various sectors. In finance, Tata Sons owns Tata Capital, which has presence across all verticals including housing finance. Tata Sons also holds direct stake in two insurance ventures.

In the case of Tata Motors, the company has two auto finance firms under Tata Motors Finance Holdings. But due to the Covid-19 pandemic, TMFL reported a loss of Rs 27 crore in the financial year ended March 2022 on revenues of Rs 3,853 crore, while TMFSL reported a lower profit of Rs 192 crore on revenues of Rs 1,048 crore (see chart).

In the fiscal 2015, TMFSL had purchased the used vehicle finance business from the holding company on a slump sale basis. The objective of creating TMFSL was to have a dedicated focus for Tata Motors guaranteed business and used vehicle financing business.

At the same time, Tata Motors had transferred its new car business to Tata Motors Finance. TMFSL is currently dedicated to used vehicle financing and dealer and vendor financing. 

According to a Care Ratings statement, the new income recognition, asset classification and NPA recognition  norms issued by the Reserve Bank of India on November 12, 2021, the gross NPAs of Tata Motors Finance Solutions are expected to increase. However, the rating firm said early this month that the deferment of implementation until September-end will give sufficient bandwidth to the NBFCs to review and reassess their collection systems and educate the borrowers on new norms, which will help them improve their gross NPAs in the future.

FY22 figures in Rs Crore	Tata Motors Finance	Tata Motors Finance Solutions
Networth	2,980	1,901
Total Debt	28,246	8,524
Advances( Loan Book)	28,204	8,085
Total Income	3,853	1,048
Net Profit	-27	192

Source: Capitaline