Listing Tata Sons: RBI's directions could strengthen group's governance

In its latest guidelines for upper-layer non-banking finance companies (NBFCs), the Reserve Bank of India (RBI) has sent out a message on stock-market listing by large corporate groups. The central bank on Wednesday issued norms classifying systemically important or upper-layer NBFCs as those with assets of over ₹1 trillion, rejecting demands from certain quarters of the industry for raising the level to ₹2.5 trillion. The entities falling under the upper-layer NBFC umbrella must mandatorily go for listing. The earlier definition of upper-layer NBFCs, which included indirect public funds received by non-banking financiers, may not apply now, with the guiding principle now being the asset value of the company. 

The RBI guidelines have come at a critical time for Tata Sons, the holding company of the salt-to-software conglomerate, with assets of more than ₹1.75 trillion. Although there’s no specific direction in the guidelines to any company to list, the RBI is expected to shortly come up with a list of upper-layer NBFCs. That should put an end to the ongoing debate on whether Tata Sons should list or not. In the midst of leadership uncertainties in the group and prolonged infighting within Tata Trusts, which has a majority shareholding of 66 per cent in Tata Sons, the stock-market listing of the parent company will be a positive development for the business. 

Tata Sons was designated an upper-layer NBFC by the RBI in September 2022, mandating its listing within three years. The RBI has not responded to the Tata group’s subsequent request seeking a change in classification from an upper-layer core investment company. Even as many former Tata veterans recently argued against a listing of Tata Sons — set up as a trading company in 1868 by Jamsetji Tata — because of the legacy value it holds, the dynamics have changed with time. Listing is expected to strengthen the governance structure. Not only will it bring greater transparency and accountability, it could also help in financing investment-intensive businesses such as semiconductors, aviation, defence and ecommerce — the things the group has ventured into in the past few years. 

Various stakeholders in the Tata universe have diverse views on the listing of Tata Sons, complicating the matter further. Tata Trusts last year passed a resolution on keeping Tata Sons private. While Tata Trusts Chairman Noel Tata is opposed to listing, two vice-chairmen of the Trusts recently supported it. The second-largest shareholder of Tata Sons, Shapoorji Pallonji Group, has been reiterating the need to list. A mandate from the RBI will help things move in a clear direction.       

With dispute over several issues intensifying within the group, even top government representatives reportedly have had to play the role of peacemakers within months of Ratan Tata’s passing. The interventions were arguably with the aim of protecting the larger interests of the economy. Against such a backdrop, listing Tata Sons — which will result in amending some of the controversial provisions in the Articles of Association — should bring stability. The veto power of Tata Trusts’ nominee directors on the board of Tata Sons, especially in appointments and dismissals of top executives, is among the changes expected once listing is done. On the whole, the listing of Tata Sons, which has a complex ownership structure, will be expected to bring more transparency and improve outcomes in the group.