RBI Governor Says Upper-Layer NBFCs Must List Amid Tata Sons Row

Reserve Bank of India Governor Sanjay Malhotra emphasized on Friday that core investment companies (CICs) with access to public funds, either directly or indirectly, must register with the central bank, whereas upper-layer non-banking financial companies (NBFCs) are mandated to list on stock exchanges. This stance was articulated during a media summit, as uncertainty surrounds Tata Sons, the holding entity of the Tata group.

Malhotra refrained from commenting on specific regulated entities but explained that registration obligations aim to mitigate systemic risks arising from group-level financing structures. Tata Sons Listing Controversy: Parsi Zoroastrian Groups Seek Protection for Tata Trusts Amid Legacy Tata Sons Debate and RBI Registration Rules

The Governor clarified that CICs not directly or indirectly linked to public funds might be exempted from registration. However, entities classified as upper-layer NBFCs must adhere to mandatory listing requirements. The RBI had categorized Tata Sons as an upper-layer NBFC in 2022, mandating compliance by 2025. Despite this, Tata Sons repaid its outstanding debt and applied to relinquish its CIC registration.

However, the central bank rejected this request last month and instructed the company to comply with upper-layer NBFC regulations.

Tata Trusts, which oversees Tata Sons, has proposed merging Tata Electronics Systems Solutions (TESS) and Tata Consulting Engineers (TCE) into the holding company. This proposal aims to alter Tata Sons' business structure, rendering it ineligible for NBFC or CIC classification. The proposed restructuring necessitates approval from the Tata Sons board and an RBI no-objection. RBI's Preference for Macroprudential Measures for Financial Stability

Regarding monetary policy, Malhotra stated that the central bank primarily relies on macroprudential measures instead of interest rates to manage financial stability risks. Although he did not rule out using monetary policy in extraordinary situations, he noted that the applicability and effectiveness of such interventions would depend on prevailing conditions.

Any decision to employ interest rates for financial stability would be evaluated by the Monetary Policy Committee (MPC). His comments highlighted the distinction between regulatory requirements for financial institutions and the RBI's overarching strategy to uphold financial stability.