What Is NBFC Upper Layer And Why Is Tata Group Trending?

Tata Group‘s listed entities, including major subsidiaries of TCS, Tata Motors, Tata Chemicals and Tata Steel rallied to new heights in the previous trading week. Here Tata Chemicals surged above 11%, in what was a short week. This news comes as a result of the buzz surrounding Tata Sons, the main holding company of Tata companies. In the year 2023, RBI listed Tata Sons as an Upper Layer NBFC (This list also includes various other companies).

What is an Upper Layer NBFC?

An Upper Layer NBFC is that entity identified by the Reserve Bank of India (RBI), which is deemed to have in place, an enhanced regulatory system. As according to the central bank, the regulatory structure for Non-Banking Financial Companies (NBFCs) will consist of four layers. This in turn is determined by the size of the company in question, along with the activities and perceived level of risk.

Furthermore, these NBFCs are further categorized, on the basis of their scale into an NBFC-BL- Base Layer, at the lowest rung. Such entities in the middle layer are known as NBFC – Middle Layer or NBFC-ML, meanwhile, NBFCs after that are called upper layer NBFC – Upper Layer or NBFC-UL. Then comes The top layer or NBFC-TL, this bracket is only activated when there is significant risk in the fortunes of the company in question.

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‘Enhanced regulatory’

Tata Sons, along with others were put in the Upper Layer category by the RBI in 2023. This means, that Tata Sons could potentially be listed within the next 1.5 years. This, as the aforementioned classification requires the company to list itself on the exchanges by September 2025.

Meanwhile, as per various reports, Tata Sons is also looking to avoid the scenario of issuing an IPO in the near or the distant future altogether, by deploying certain restructuring mechanisms, in order to slip out of the NBFC-upper layer bracket, thereby avoiding the ‘enhanced regulation’.

RBI rejects Tata’s plea

After RBI rejected Tata’s plea for exemption from the rule, Tata is said to be considering the idea of restructuring its balance sheet. Restructuring the balance sheet here refers to the reorganization (here Tata Sons) of specific debts owed by the credit parties as outlined in this agreement, including the modified principal amounts of other benchmark debts.

With September 2025 being the last date for compliance, it remains to be as to what comes out it, while many analysts say that a listing appears unlikely, the status would also depend upon Tata’s ability to comply with RBI guidelines in due time.

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This story originally appeared in the Free Press Journal and is published here under a mutual content-sharing agreement.

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