Tata Group rethinks & plans to withdraw from banking business

26 May 2022 CW Team

The Tata Group has rethought its banking business plans and might potentially abandon them.

After a working committee of the Reserve Bank of India (RBI) advised issuing banking licences to industrial firms in November 2020, the group contemplated moving into banking through Tata Capital, its financial services subsidiary.

They claim that even while the laws for non-banking financial firms (NBFCs) and banks are convergent, there is still a benefit to being an independent finance company since banks' operational costs are substantially greater.

The largest difficulty for Tatas will be ensuring compliance at the corporate level, as almost a thousand balance sheets would need to be examined for related-party activities. Tata Neu, the group's consumer app, has a licence to operate a payment gateway.

Tata Capital is the holding firm for Tata Capital Financial Services, Tata Capital Housing Finance, and Tata Cleantech Capital, as well as three investing and consulting businesses: Tata Securities, Tata Capital Singapore, and private equity funds. With a revenue of more than 10,000 crore, Tata Capital has been limiting its exposure to corporate loans and focused on retail loans to keep credit costs low and accelerate digitalization.

The RBI has also suggested that NBFCs owned by industrial firms with assets of above 50,000 crore be transformed into banks. Banks, unlike other financial institutions, must maintain a cash reserve ratio, invest more in government bonds, lend to priority sectors such as farmers, students, and exporters, and hire competent bank employees.

The RBI's internal report, which recommended that industrial houses be granted banking licences, also recommended changes to the Banking Regulations Act, such as placing restrictions on related-party transactions and strengthening conglomerate supervisory mechanisms, including consolidated supervision, for large conglomerates.

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The Tata Group has rethought its banking business plans and might potentially abandon them. After a working committee of the Reserve Bank of India (RBI) advised issuing banking licences to industrial firms in November 2020, the group contemplated moving into banking through Tata Capital, its financial services subsidiary. They claim that even while the laws for non-banking financial firms (NBFCs) and banks are convergent, there is still a benefit to being an independent finance company since banks' operational costs are substantially greater. The largest difficulty for Tatas will be ensuring compliance at the corporate level, as almost a thousand balance sheets would need to be examined for related-party activities. Tata Neu, the group's consumer app, has a licence to operate a payment gateway. Tata Capital is the holding firm for Tata Capital Financial Services, Tata Capital Housing Finance, and Tata Cleantech Capital, as well as three investing and consulting businesses: Tata Securities, Tata Capital Singapore, and private equity funds. With a revenue of more than 10,000 crore, Tata Capital has been limiting its exposure to corporate loans and focused on retail loans to keep credit costs low and accelerate digitalization. The RBI has also suggested that NBFCs owned by industrial firms with assets of above 50,000 crore be transformed into banks. Banks, unlike other financial institutions, must maintain a cash reserve ratio, invest more in government bonds, lend to priority sectors such as farmers, students, and exporters, and hire competent bank employees. The RBI's internal report, which recommended that industrial houses be granted banking licences, also recommended changes to the Banking Regulations Act, such as placing restrictions on related-party transactions and strengthening conglomerate supervisory mechanisms, including consolidated supervision, for large conglomerates. Image Source

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