Tata Sons’ IPO Fate Hinges on RBI Decision as Deadline Nears
As per the Reserve Bank of India’s Scale Based Regulation Framework, Tata Sons now has less than a year to launch its IPO. If commenced now, it will take at least 6 months to prepare for the launch.
However, the decision whether the company has to bring the IPO or not remains in the hands of RBI. Of the 15 NBFCs classified as upper layer that needs to be listed, more than 10 have already brought IPO and the remaining are working towards it. However, Tata Sons is the only company actively trying to get an exemption by taking steps like clearing off its debts and applying to RBI for voluntary surrender of its certificate of registration.
If Tata Sons does get an exemption, other companies may likely seek similar relief. In such a situation, all eyes are on RBI’s final decision regarding the Tata Sons listing.
Meanwhile, some analysts argue a case of conflict of interest as Venu Srinivasan, the vice chairman of Tata Trust is also on the board of RBI. With Tata Trusts and Tata Sons belonging to the same group, experts claim that this can be seen as a clear case of ethical dilemma. This could lead to delays in Tata Sons’ IPO plans.
RBI’s Scale-Based Regulation (SBR) framework targets top-layer non-banking financial companies (NBFCs). The SBR guidelines were issued by the RBI on October 22, 2021, with provisions requiring certain NBFCs to list themselves on the stock exchanges, particularly those categorized in the top layer of the SBR framework. These guidelines became effective from October 1, 2022, with specific instructions on Initial Public Offerings (IPO) funding coming into effect on April 1, 2022. Notably, Srinivas was appointed to the RBI board on June 14, 2022.
On September 14, 2023, the RBI released the names of 15 NBFCs placed in the upper layer, including Tata Sons, marking them as systemically important and subjecting them to enhanced regulatory scrutiny. Listing such companies is seen as a critical step toward improving corporate governance and transparency in the financial sector.
It is also notable that RBI Governor Shaktikanta Das was nominated by the Tamil Nadu Government to serve as the Chairman of a Tata Group Company, Titan from 2006 to 2008.
The companies categorized in the Upper Layer include significant financial players such as LIC Housing Finance, Bajaj Finance, Shriram Finance, L&T Finance, and Tata Capital Financial Services. All these entities, with the exception of Tata Sons, have either adhered to or begun taking steps to fulfill the RBI’s mandatory listing requirement.
The public listing of Tata Sons is expected to offer several advantages, including improved access to capital for growth and debt reduction, stronger governance and transparency, and a potential rise in the company’s valuation. Market experts suggest that a Tata Sons IPO could unlock substantial shareholder value, with estimates indicating that even a 5% stake could bring in over Rs 55,000 crore, boosting market liquidity and trading volumes.
Furthermore, the listing would increase liquidity for existing shareholders and enhance Tata Sons’ brand visibility. As of June 2024, Tata remains India’s most valuable brand, valued at $28.6 billion.
