The Tata Saga – Part 2
The Tata Sons Question: Split
The RBI’s position may have created a problem for Tata Sons. But it may also have created a roadmap. The key distinction is between Tata Sons and Tata Capital. Ever since the Tata Finance founder (Pendse) hung from a fan to kill himself – a victim of malafide intent – his ghost continues to haunt the House of Tatas.
Tata Sons itself does not deal directly with customers. Tata Capital, does. And the acid test of being a NBFC is not just access to public funds (which Tata got around by clearing debt) but dealing with the public. Tata Capital lends to the public at large. And is controlled by Tata Sons.
That distinction appears to have mattered in the RBI’s decision on deregistration of the NBFC.
If Tata Sons cannot exit the regulatory framework because of its financial-services exposure, the obvious structural question becomes:
Why keep the financial arm inside Tata Sons at all? A possible answer is a separation. Move the financial-services business into a separately listed vehicle.
Keep the core Tata Sons holding company — particularly its strategic stake in TCS and other operating companies — outside the listed structure. Though this would potentially becomes a shareholder, governance and regulatory battle.
A scheme of arrangement would require shareholder approval. The interests of the Tata Trusts would become central. And the cross-holdings among the listed Tata companies would make the governance implications enormous. The real question therefore may not be:
“Will Tata Sons IPO?”
It may be:
“What exactly will Tata Sons become before it IPOs?” The financial arm. The TCS holding. The operating-company portfolio. The Trusts.
The listed cross-holdings.
The RBI.
The courts.
All of these pieces suddenly become part of one larger structural question. And that is why the next chapter of Tata Sons may be more about architecture.
Watch the structure, not the statements.
The way forward for Tata Sons is to get out of RBI clutches and moving into those of a more market friendly SEBI. AIFs are regulated by SEBI, not by RBI.
RBI is a failed regulator by design. SEBI and TRAI are among the world’s best. And this is not because I spend years on conceptualising both – but because of what they have become in the three decades since.
Central Banks around the world are in stress. They manage one stock called the currency. And crypto has created an alternate angel which bypasses all currencies. Like some shares, most currencies are rigged. And finally share values are expressed in a currency. Actually they need not be. All share prices should be valued in bitcoins. As should all currencies.
India’s failure in manufacturing has been the doing of RBI. The repo rate is not what free market levels would take cost of money to.
But all that is a larger discussion.
For now Tatas need a stay on RBIs order.
Or it is the end of the House of Tatas.