Reserve Bank of India (RBI) Governor Sanjay Malhotra justified the classification of Tata Sons as a pearl-level non-banking finance company or NBFC, saying that large NBFCs and key investment companies (CICs) that have direct or indirect access to public funds are required to be registered with the central bank. Participating in a Private Channel World Summit, Malhotra said that large NBFCs and CICs like Tata Sons are at the helm of group companies and use the books of group companies to raise funds. This creates a systemic risk to public funding.

A list will be required

Malhotra said public money comes from corporate bonds, banks and other means. Therefore, registration of such companies with RBI is required. However, CICs that do not have direct or indirect access to public funds are exempted from the registration requirement. The RBI governor said that if a company falls under the category of NBFC or CIC under the RBI definition and has direct or indirect access to public funds, it has to register. If it falls in the higher tier category, it has to be listed on the stock exchange as well.

This list came in 2022

Last month, the RBI rejected an application by Tata Sons, the holding company of the Tata group, to return the NBFC registration certificate. Due to this, the possibility of Tata Sons getting listed in the stock market has increased. Tata Sons was classified as a top tier NBFC in September, 2022. The company applied for deregistration in March 2024 and also paid off its debt to be eligible to exit the category. Meanwhile, the board of directors of Tata Sons has taken steps regarding the possible listing. However, amid growing differences on the issue within the group, the company has said that other options will also be considered.

The challenge of food inflation

Meanwhile, Malhotra reiterated that the RBI’s priority is to maintain price stability and support long-term economic growth by keeping inflation within target. He said that indicators such as cement and steel sales, credit growth, tax collection and vehicle sales indicate strong activities in the economy. The RBI governor said that inflation is within the central bank’s satisfactory range, but supply-side pressures related to food and fuel prices remain a challenge. He estimated the average inflation for the current year to be 5.1 percent. On the rupee’s value against the dollar, Malhotra said the RBI does not target a specific exchange rate. The central bank’s emphasis is on maintaining orderly conditions in the foreign exchange market and controlling fluctuations rather than defending any fixed level.