Tata Capital board accepts plan to consolidate arms

By Consultants Review Team Thursday, 27 April 2023

tataTata Capital, the holding firm of Tata Group's financial services company, is consolidating its group subsidiaries following its recent board approval, ahead of confirming its listing plans to meet the revised scale-based regulation (SBR) of the Reserve Bank of India. Subsidiaries, Tata Capital Financial Services, and Tata Cleantech will combine with Tata Capital, top executives close to the group said. Tata Housing Finance will be housed separately under the holding company.

Executives said housing finance businesses are usually housed separately from other non-bank finance companies, owing to operational conveniences such as accessing low-cost funds from the National Housing Bank and lower capital requirements. Also, investors in NBFCs usually have a different profile compared with those in housing finance entities.

The Tata Group is structuring the entity along the lines of Bajaj Finance which has kept its housing entity separate from the NBFC. The board of Tata Capital has formally approved the consolidation proposal at a recent meeting, people close to the development.

In September 2022, the central bank added Tata Capital Financial Services to its list of non-bank lenders in the upper layer under the SBR. The firm now must implement a board-approved policy for adopting the applicable enhanced regulatory framework and mandatorily list within three years of its classification as an 'upper layer' non-bank lender.

Tata Capital is the holding company for the group's three lending businesses - Tata Capital Financial Services, Tata Capital Housing Finance and Tata Cleantech Capital - and three investment and advisory businesses: Tata Securities, Tata Capital Singapore and private equity. Tata Capital Financial Services is registered with the central bank as a systemically important non-deposit accepting non-banking financial company.

As the Tata group's non-captive lending vehicle, Tata Capital is the primary financial services arm and remains critical to the group, given the growth opportunities in this sector over the medium to long term, according to rating agency Crisil. The Tata Capital group is also strategically important to the Tata Group because it caters to the funding requirements of various entities associated with the conglomerate, such as its suppliers, vendors and dealers. The combined net worth of Tata Capital was Rs 14,194 crore as on September 30, 2022. It raised Rs 593.8 crore in March 2023 through a rights share issue.

Tata Sons owns 94.55% of Tata Capital, and the other Tata group companies and trusts hold most of the remaining stake. Tata Capital holds a 100% stake in its two main subsidiaries - Tata Capital Financial Services and Tata Capital Housing Finance. Tata Sons have infused Rs 6,300 crore in Tata Capital since its inception, of which Rs 1,000 crore was infused in fiscal 2020 and Rs 2,500 crore in fiscal 2019, indicating the intent of the group to step up its focus on the lending business, according to Crisil. Tata Capital has a consolidated book of Rs 1.04 lakh crores as of September 30, 2022, increased from Rs 94,349 crore as of March 31, 2022. From April to September 2022, Tata Capital recorded 22% year-on-year growth in income at Rs 2,924 crore.

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