The Reserve Bank of India’s final guidelines on upper-layer non-banking financial company classification have given Tata Sons a breather on one front — while leaving its central dilemma entirely unresolved.
The new framework, issued on Wednesday, drops the ‘access to public funds’ criterion that had been one of the factors pushing Tata Sons into the upper-layer classification. This matters because the RBI had earlier rejected industry feedback that equity infusion from group entities’ own funds should not be treated as indirect public funds. Since Tata Group companies hold around 13-16% stake in Tata Sons, that interpretation had added to the company’s regulatory burden. Its removal is a genuine, if limited, concession.
However, analysts said while this is a partial relief, the question of whether Tata Sons lists—one of the most consequential unresolved issues in Indian corporate finance—still remains exactly where it was. In the hands of the regulator, and without a timeline.
Asset Size Trap
That’s because the RBI has retained the Rs 1 lakh crore asset size threshold as the primary criterion for upper-layer classification, replacing the earlier parametric scoring methodology that weighed a combination of factors including size, leverage, interconnectedness and complexity. With Tata Sons’ standalone assets standing at around Rs 1.75 lakh crore as of FY25—well above the threshold—the simplified framework, paradoxically, makes the company’s position harder to contest rather than easier. Under the old methodology, there was room to argue across multiple parameters. Under the new one, asset size is the dominant screen, and Tata Sons clears it by a wide margin.
The industry had pushed for the threshold to be raised to Rs 2.5 lakh crore and for the parametric approach to be retained. The RBI was unmoved. “The asset size threshold of Rs 1 lakh crore and above has been decided on the basis of the current profile of the NBFC sector and also on analysis of the financial profile of existing NBFC-ULs,” it said.
The classification carries significant consequences. In September 2022, the RBI designated Tata Sons and Tata Capital as upper-layer NBFCs, a status that requires such entities to list within three years. Tata Capital has since moved swiftly — completing its listing process this week, with its shares set to debut on Monday. Tata Sons has made no equivalent move, and neither the company nor the regulator has clarified whether a listing remains required, is being deferred, or has been informally set aside.
The new circular offers no resolution on this point. It contains no specific exemption for Tata Sons, and no carve-out for Core Investment Companies that would automatically exclude them from upper-layer classification or its associated listing requirements.
Operational Exit Ramps
What has drawn attention instead is Tata Sons’ separate application to surrender its NBFC and CIC registration altogether — an exit from the regulatory framework that triggers the listing obligation in the first place. RBI Governor Sanjay Malhotra had said earlier this year that the request remained under examination. At the latest monetary policy press conference, he reiterated only that the revised upper-layer list would be issued separately, without elaborating on the deregistration application.
For now, that application represents Tata Sons’ most viable path to avoiding a public listing, analysts said. The RBI’s new guidelines do not mandate an IPO, but by making asset size the central and near-exclusive criterion for upper-layer classification, they have narrowed the company’s room to argue that it falls outside the framework on other grounds.
Among other clarifications in the final guidelines, the RBI said the upper layer would comprise NBFCs specifically identified annually by the central bank as requiring enhanced regulatory oversight based on prescribed criteria.
Compliance with NBFC-UL regulations will apply from the date the RBI notifies the NBFC-UL list. The central bank last updated the list on January 16, 2025.
Given the sector’s growth, the RBI has reduced the frequency of asset size reviews from five years to three years. It also clarified that the asset size of NBFCs will be assessed on a standalone basis.
Stakeholders had also sought exemptions for certain government NBFCs with developmental or infrastructure mandates from inclusion in the upper layer or from requirements such as the large exposure framework (LEF) and listing norms, citing their specialised business models.
Partially accepting the feedback, the RBI said eligible government NBFCs would continue to be included in the upper layer list. However, for NBFC-infrastructure finance companies (NBFC-IFCs) in the upper layer, the LEF limit for groups of connected counterparties has been increased from 35% to 45% of eligible capital base. Listing will not be mandatory for upper-layer NBFCs that are fully owned and controlled by the government.
The RBI rejected suggestions on exempting subsidiaries of listed entities from listing requirements, extending additional timelines for listing, creating a separate regulatory framework for government-owned NBFC-IFCs, and concerns related to CET1 capital requirements and standard asset provisioning for derivatives exposure, among others.