RBI governor Sanjay Malhotra defends Tata Sons' upper-layer NBFC classification, says listing mandatory

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday defended the central bank's decision to classify Tata Sons as an upper-layer non-banking financial company (NBFC), saying large NBFCs and core investment companies (CICs) that access public funds must register with the RBI and comply with the applicable listing rules.

Speaking at the NDTV World Summit, Malhotra said such companies can pose systemic risks as they sit at the top of corporate groups, raise funds and use the balance sheets of group companies to manage or repay those funds.

"So, the funds of the public, whether it is through corporate bonds, banks and other means, that is at risk...so, it is for these reasons that these CICs, or NBFCs, are required to be registered," he said.

However, CICs that do not have direct or indirect access to public funds are exempt from the registration requirement, the RBI governor said.

"As long as it is an NBFC within our definition, it is a CIC, it has access to funds, direct or indirect, it's required to be registered, and if it is in the upper layer, then it is required to list," he said.

Last month, the RBI rejected Tata Sons' application to surrender its non-banking finance company licence, bringing the holding company of the Tata Group closer to a possible public listing.

Tata Sons was classified as an upper-layer NBFC in September 2022. It applied to surrender its registration in March 2024 after repaying its debt, in an attempt to qualify for deregistration. Under the RBI's rules, upper-layer NBFCs are required to list their shares on stock exchanges.

The Tata Sons board has since taken steps linked to a possible listing, while also indicating that it would examine other options amid differences within the conglomerate over the issue.

RBI's focus remains on inflation and growth

Malhotra also reaffirmed that the RBI's main objective is to maintain price stability through inflation targeting while supporting long-term economic growth. He said India's strong macroeconomic fundamentals continue to support economic activity, with high-frequency indicators pointing to resilient growth across sectors.

The governor cited cement and steel sales, credit growth, tax collections and automobile sales as signs that economic momentum remains intact. He added that growth was broad-based, with activity holding up across several segments of the economy.

Inflation remains within the RBI's tolerance band, although supply-side pressures, particularly from food and fuel, continue to pose challenges. Malhotra referred to an average inflation projection of 5.1% for the current year, attributing the outlook to supply-side factors.

RBI not targeting a particular rupee level

On the rupee, Malhotra said the RBI was not targeting any specific exchange-rate level.

Instead, the central bank's focus is on ensuring orderly conditions in the foreign exchange market and managing excessive volatility, rather than defending a particular value of the currency.