Want more retail investors in Tata Capital story: MD & CEO Rajiv Sabharwal

Rajiv Sabharwal, MD & CEO of Tata Capital, spoke with Subrata Panda about the company’s upcoming initial public offering (IPO), which is set to be the fourth-largest to hit the market next month. While the IPO has been slightly delayed beyond the Reserve Bank of India's (RBI) mandated September deadline, Sabharwal noted that they have been in regular communication with the regulator, and the RBI has granted its consent for the slight delay. Edited Excerpts:

 

What is the reason behind not meeting the September deadline for listing? 

 

We got all the approvals for the merger of Tata Motor Finance with Tata Capital in May 2025, which was just four months back. We have been working since then so that we can be close to the timeline given out by the regulator to list on the bourses, and we are very close. A difference of 10 to 13 days really does not make that much of a difference and we have been in dialogue with the regulator. They have looked at our intent and given their consent. So, there is no issue on that front.

 

The price band is at a steep discount to the unlisted market price, and is lower than the price at which the last rights issue was done… 

 

Unlisted market, I don't track. So, I am not aware of that. 

 

As far as the rights issue is concerned, I think the board looked at the opportunity and the idea that at an IPO stage, we would like to get more retail investors because later on, usually people raise money through qualified institutional placements (QIPs). So, this was the best time to get more retail investors and keeping in with the whole philosophy of being investor friendly, the board felt that we should come out at a price which is 5 per cent discount to the right price. The upper band is at a 5 per cent discount to the right price and that is the reason we have kept a range of Rs 310 to Rs 326.

 

Has the IPO size been reduced? 

 

If you look at our first filing, it was in terms of number of shares. It was never in terms of value or anything. We had said the offer will include 210 million fresh shares, and around 230 million shares as offer for sale (OFS) from Tata Sons and another 36 million shares from International Finance Center (IFC). So, that remains the same. Nothing has changed and the decision of the board on what the IPO pricing actually happened only yesterday. So, before that any other value which was stated, did not come from the board. So, this is the first time it has come from the board.

 

How has the response been from the foreign portfolio investors (FIIs) and the domestic institutional investors (DIIs)? 

 

The response from both FIIs as well as domestic investors has been overwhelming. On October 3, the anchor allocation will happen and to that extent one will see that the amount of response which we got was excellent. This is the country's fourth largest IPO, and the biggest in the financial services space. It's a large IPO coming from the house of Tata's after a long time and I think the company has been doing well and we would want more and more retail investors to be a part of the Tata Capital story.

 

How much will Tata Group hold in Tata Capital post the IPO? 

 

Tata Group's holding post IPO will be about 85.4 per cent. 

 

Is there a roadmap to meet the 25 per cent minimum public shareholding norms? 

 

I think the regulations allow 5 years of time and there is some talk about the regulations being changed to allow for more time. So, we will comply with what the regulations are. That’s our group philosophy but it is very difficult to give a timeline at this point of time. 

 

How long will this fundraise be sufficient for? 

 

Normally, what happens is the capital which gets raised over a period of time gets leveraged because when you raise it takes time for you to fully leverage the capital. On a steady state basis, our leverage will remain between 5.5 - 6.5 times. So, if on an average, we leverage about six times, we will need to add this capital plus the profits which the company will make over the next few years and on that we will leverage anywhere between 5.5 - 6.5 times. So, we believe that this capital should be sufficient for us to look at the next two and a half to three years post which we may need further capital for growth.

 

Your return of assets (RoAs) have been slightly compressed compared to your peers. How do you plan to improve that?

 

There are multiple levers to impact ROAs, and the company has historically delivered ROAs of 15 to 16 percent. The merger with Tata Motors Finance has just taken place. We believe it has given us an opportunity to expand our presence in a large segment, and the integration process is currently underway—most of which is already complete. The technology integration will take place over time. Looking ahead, we believe the real opportunity lies in the new, high-margin products we have introduced. These products are expected to contribute to both improved net interest margins and fee income. Additionally, our investments in technology and generative AI are yielding positive results, and we are clearly seeing a downward trajectory in our cost-to-average-assets ratio. Thirdly, while our credit costs have inched up due to the merger and some exposure to unsecured lending, we believe the worst is behind us. We expect continued improvement going forward. Historically, we have operated with credit costs below 1 per cent, and we will continue to strive to maintain that benchmark.

 

Over 50 per cent of your borrowings are from banks. Will that change?

 

When we talk about banks, it is banks and institutions. It includes even the foreign borrowing, the ECBs and bonds which we have raised, it also includes NHB, it also includes SIDBI. So it is not one monolith but a number of segments there and banks are an important source. The proportion will more or less remain the same, it may move a percentage here or there but largely it will remain range bound there. Obviously it changes really depending on where we are able to get finer pricing.

 

With spreads compressing in the overseas bond market, will you look to raise more funds from there?

 

We are always in the market. We have done some external commercial borrowings (ECBs) some time back. Money is our raw material. So we will be opportunistic as far as ECBs and bonds are concerned. We will look at what the landed cost to us, fully hedged and if we feel it is attractive, we are ready to raise. 

 

Will your loan mix change post the IPO? 

 

Our corporate exposure is 10-12 per cent. It ranges between that. Sometimes it goes up, sometimes it comes down but it remains within that range of 10-12 per cent. And we believe that that is the range in which we will remain. So our mix will more or less remain the same as it is now. 

 

Are there any new lines of business that would enter into?

 

So we keep looking at new business lines. We try to time it because you cannot enter multiple products at the same point of time. You have to invest in every product. So to that extent, yes, there are segments where we are not present and at some stage we will look at those segments. 

 

Would you be interest in entering credit card segments on your own if RBI permits? 

 

I think usually what the regulator does is if it decides to give it, it communicates and it creates a window in which NBFCs or banks or whatever, they can apply. So to that extent, we will wait for the regulations. Once there is change in regulations, then we will look at the opportunity. Obviously, we will discuss it with the board also and if we have a consent, we will apply. We will look at it. There is no point in spending time on it before we know the regulations. 

 

Does the fact that corporate houses cannot own a bank limit your growth opportunities, going forward?

 

We are not seeing it at all. In fact, we are able to raise our liabilities, we are able to lend, we are able to expand to new geographies, we are able to create digital products, we are able to do all of what we want in the lending area. So I don't think that is inhibiting in any way. 

 

Would you be interested in including deposits as part of your liabilities portfolio, especially since the top two NBFCs already offer them?

 

No, I think that is more of a regulatory decision. And, I really don't want to talk about regulatory decisions because we have a lot of respect for RBI and we believe that they make the right decisions. So in future if there is an opportunity, we would definitely want to look at that opportunity.