Navigation
Contact Us
717, Tower B,
One BKC,
Bandra Kurla Complex,
Mumbai – 400051
contact@resolutpartners.com
Mumbai – 400051
contact@resolutpartners.com
August 14, 2024
RBI’s Scale Based Regulations (SBR) classified Tata Sons, a core investment company (CIC) in the upper layer of Non-Banking Financial Companies (NBFC-UL) in September 2022, subjecting it to the mandatory listing requirement by September 2025
SBR for NBFCs is not merely an asset size test but a weighted computation of multiple factors, including size and leverage, financial interconnectedness, complexity, nature and size of liabilities, group structure, and segment penetration
Tata Sons plans to retire all its debt to avoid the listing obligation. A CIC without ‘public funds’ (defined to mean any debt, including shareholder debt) does not require registration with the RBI. (Read our Analysis: Investing into Infrastructure Holding Companies: What if you become a core investment company?)
RBI notes obligation to list serves two purposes – maintaining the highest corporate governance standards and a diffused ownership structure minimizing the possibility of abuse of dominance
Diktat to list NBFCs driven by IL&FS crisis which was a CIC. However, CICs, unlike other NBFCs, do not engage in financial activities and are merely group-holding companies whose passive income from subsidiaries exceeds their operational income
Holding companies is a common way of structuring businesses globally. However, in India, such structures run the risk of CIC classification, requiring registration with the RBI and enhanced regulatory compliance, including eventual listing obligation. (Refer to our paper on CIC)
While group holding companies can be structured to receive higher operational income (e.g., in the form of service fees) to avoid CIC classification, there is a need to reconsider the regulatory approach towards CICs to ensure that intra-group arrangements remain genuine and straightforward