While the Reserve Bank took 30 long months to reject Tata Sons’ application--filed in March 2024, after meeting all the then existing regulatory conditions--to cancel its NBFC-CIC licence, without proffering any reason for doing so in a terse letter dated September 11, the central bank woke up six days later to indirectly explain why it did what it did on the Tatas in the form of an FAQ, which though remains completely silent on the merits of pushing a company to go a stock exchange listing.
All it said in the letter to the Tata group chief financial officer Saurabh Agrawal was that its application for voluntary surrender of its CIC licence “cannot be acceded to”.
The RBI had classified Tata Sons as an upper-layer NBFC in October 2022, under which it was to go public before the end of September 2025. But since then it met all the conditions to be treated an upper layer NBFC by March 2024 and in the same month wrote to RBI to cancel its certificate of registration as a CIC. However, the RBI chose to sit over it for the next 30 months and even in the August 2026 list, it retained the company in the upper-layer NBFC list, saying the decision was “without prejudice” to the final outcome of the pending application.
The s0-called FAQ, issued late Tuesday night, clarifies why it chose to retain Tata Sons remains an upper layer NBFC despite being completely debt-free and having no direct public borrowings, but has had no impact on the $290-billion with diverse business interest as the regulatory goalpost kept changing. It now clarifies—after five months of issuing the new set of norms for large NBFCs—by defining three concepts – definitions of a CIC, principal business and public funds.
RBI's requirement that Tata Sons be classified as an upper layer NBFC, and its rejection of the company's bid to deregister as an unregistered core investment company (CIC), are anchored in three provisions explained in the FAQ.
The first relates to the definition of a CIC, which requires a company to hold at least 90% of its net assets in investments in group companies of which at least 60% in equity shares. This places Tata Sons within the CIC framework given its primary role of a holding equity in group operating companies such as TCS, Tata Motors and Tata Steel and many others. The group has as many as 26 large listed companies.
The FAQ also highlights the 50:50 criteria (also known as the principal business test) as the standard it uses to determine whether a firm's principal business is financial activity, thereby requiring it to register and be regulated as a NBFC.
To qualify as an NBFC under this rule, an entity must satisfy the following three conditions: financial assets must constitute over 50% of its total assets (netted off by intangible assets) and income generated from those financial assets must account for over 50% of its total gross income.
The second key condition is the asset-size threshold of Rs 100 crore or above. The third relates to the definition of public funds, which explains that access to such funds is not restricted to direct borrowing by the entity itself.
"Public funds are not the same as public deposits. Public funds include public deposits, inter-corporate deposits, bank finance and all funds received whether directly or indirectly from outside sources such as funds raised by issue of commercial papers, debentures, etc. Further, indirect receipt of public funds means funds received not directly but through associates and group entities which have access to public funds," the FAQ said.
Tata Sons had repaid its standalone debt of over Rs 22,000 crore by March 2024 which was one of the conditions in the October 2022 upper layer-NBFC list and became a zero-debt entity. It had also stopped giving corporate guarantees to group companies’ borrowings—thus meeting the two key conditions in the past norms.
Then in March 2024, it filed an application to cancel its NBFC licence arguing that without direct public borrowings, it was no longer required to remain a registered NBFC-CIC and so wanted to surrender its certificate of registration.
RBI's belated explanation of public funds in the FAQ addresses this argument by stating that an entity is deemed to access public funds indirectly if its group companies/subsidiaries raise funds from the market through bank loans, commercial papers or debentures. Since Tata Sons controls and finances entities such as Tata Capital, Tata Motors and Tata Power, RBI treats it as having indirect access to public funds.
The clarification on the definition of core investment and public funds therefore prevents Tata Sons from claiming an exemption on the basis that it is debt-free and does not directly access public funds. It remains subject to the upper layer NBFC framework, including the mandatory public listing requirement.