Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Friday that core investment companies (CICs) that access public funds, directly or indirectly, must register with the central bank, and that non-banking financial companies (NBFCs) classified in the upper layer are required to list on stock exchanges.
His remarks come amid a debate over whether Tata Sons, the holding company of India’s largest conglomerate Tata group, is required to go public.
“We do not answer questions relating to any specific regulated entity,” Malhotra said at the NDTV World Summit in New Delhi. “But let me mention to you that NBFCs and CICs, like for example Tata Sons and others, they are required to be registered with us because of the systemic risks, because they sit on top of group companies where they leverage funds, they can leverage funds, they do leverage funds, and they use the balance sheets of the group companies to return those funds.”
Asked separately about the rules governing upper-layer NBFCs, Malhotra said: “As long as it's an NBFC within our definition, it's 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 added that “only in case a CIC does not have access, directly or indirectly, to public funds, then we allow them not to be registered”.
The central bank classified Tata Sons as an upper-layer NBFC in 2022, following which it had three years until 2025 to list on the exchanges. Instead, the company repaid its outstanding debt and sought the cancellation of its registration as a CIC.
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Last month, however, the RBI rejected the request to surrender its registration and directed Tata Sons to comply with the requirements applicable to upper-layer NBFCs.
Tata Trusts, which controls Tata Sons, on the other hand, has proposed merging Tata Electronics Systems Solutions (TESS) and Tata Consulting Engineers (TCE) into the holding company in an effort to avoid a public listing. The proposal is intended to alter Tata Sons’ business mix so that, according to the Trusts, it would no longer qualify as an NBFC or a CIC. The plan requires approval from the Tata Sons board and a no-objection from the RBI.
Turning to monetary policy, Malhotra said the RBI generally does not use interest rates to address financial stability risks, relying instead on macroprudential measures. He did not, however, rule out using monetary policy in certain circumstances, saying the decision rested with the Monetary Policy Committee (MPC). “As I said, generally we do not use monetary policy for the purposes of financial stability, but there can be times when it is used,” he said. Whether such action was warranted, appropriate and effective would depend on the circumstances, he added, and would be considered by the MPC.
At its latest meeting earlier this month, the MPC raised the policy repo rate by 25 basis points to 5.50 per cent and shifted its stance from neutral to “calibrated tightening”.
The governor also acknowledged the growing cybersecurity risks facing the financial system, as banks report instances of data leaks on the dark web. He separately flagged concerns about the implications of artificial intelligence (AI) for financial stability. “These risks are real. One cannot discount them, so I will not downplay those risks,” he said.
Malhotra identified two principal areas of concern: Data security and cyberattacks capable of disrupting or bringing down systems. The RBI had a robust regulatory and supervisory framework to address both, he said, but the rapid pace of software development meant that vulnerabilities could still emerge.