The group issued a statement Wednesday saying its current non-banking finance company-led model best supports its 1,000-odd domestic and overseas companies with the help they need.
The current round of licences are expected to be handed out before the general elections next year. The move was also seen as a means to allow the domestic corporate sector enter banking.
But with Tata following the Mahindra group out of the ring, the field has got whittled considerably as both were seen as strong contenders for opening banks.
The Tata decision was made by the board of the group at a meeting earlier this week, a company source said.
RBI Governor Raghuram Rajan has said that he wants to move away from a one-time approach to accepting applications for setting up new banks. He has also said there is no need for all banks to follow the same model of universal banking and there is room for niche banks in the economy.
These comments may have caused Tata to decide to wait for another occasion, analysts said.
After prolonged deliberations and detailed analysis, Tata Sons has therefore decided to withdraw its application dated 1 July, 2013, from the current round of licensing, a Tata statement said.
While RBI guidelines demand that all financing companies of the corporate group which gets the new licence has to be brought under the proposed bank or become a part of its overarching non-operating financial holding company, the Tata group has objected to this.
The group currently earns about 64 per cent of its revenue from international operations. Overseas financing is further complicated as the law in some countries require the operating company to partner with a local bank to set up a financing company, a Tata source said.
The group also said it had not withdrawn earlier as it was impossible to identify all issues and put in place concrete solutions within the time limit set by RBI. Given that we have more than 1,000 companies in the group, it was impossible to complete a detailed assessment, seek the requisite approvals from various affected Tata companies prior to filing of our application, it said.