Tata says bye to banking

Feels the current financial services model best suits group's needs

Tata Sons, the holding company of the Tata group, has become the second private business house to withdraw its application for a banking licence. According to the company, the move towards banking was seen coming in the way of the group’s international operations, which account for about 64 per cent of its revenue.

The Reserve Bank of India (RBI), in a press statement issued on Wednesday, said it had accepted the request for withdrawal of the application. RBI said the company had indicated its current financial services operating model best supported the needs of the Tata group’s domestic and foreign strategy and provided adequate operating flexibility to its companies, while securing the interests of the group’s diverse stakeholder base.

Elaborating on the reasons, a spokesperson for the Tata group said a detailed evaluation of the guidelines and analysis of clarifications were done after filing of application on July 1. It was found that group companies with foreign operations, at times, needed to provide financing solutions to their customers. Since all financing companies in the group needed to be under the non-operative financial holding company (NOFHC), there might have been situations when a particular country was not priority for the proposed bank/NOFHC but extremely important for an operating company.

“An equitable framework needs to be prepared on how some of these situations will be addressed. Overseas financing is further complicated, as laws in some countries require operating companies to partner with local banks to set up financing companies. Compliance with such requirements will not be possible under the existing guidelines, which want all financial services entities of a group to be owned by its NOFHC; no group company can have a direct shareholding in entities. Whether such a restructuring will be of value for operating companies was also a question that was examined,” Tata Sons said.

The spokesperson said RBI’s clarifications on its queries had come on June 3, while the last date for filing applications was July 1. There was hardly any time to consult all operating firms before deciding.

So, it applied for a licence, clearly mentioning any change in legal shareholding structure would be subject to regulatory and internal corporate approvals, as required by the transferring company and the company whose shares were being transferred.

The group, however, has kept the window open for a banking foray in future by saying Tata Sons believes solutions for each of these issues can and will be found in the long run. “The company shall continue to monitor developments in this space with great interest and looks forward to participating in the banking sector at an appropriate time,” the statement said.

Tata Sons’ application had been filed besides those of others like Aditya Birla Nuvo, Bajaj Finance, L&T Finance, and Reliance Capital. Later, on September 3, RBI had said Chandigarh-based K C Land & Finance had also applied for a licence on July 1 but its application was inadvertently not included in the list.

Before Tata Sons, Value Industries, promoted by Venugopal Dhoot, had also withdrawn its application. With the latest withdrawal, the total number of banking licence applicants has come down to 25.

Earlier, the Mahindra & Mahindra group had announced it was not applying for a banking licence as guidelines did not favour large non-banking financial companies like Mahindra Finance.