Hope to persuade RBI to look at our case once again: Noel Tata
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Tata Trusts chairman Noel Tata on Tuesday said the listing of Tata Sons, the holding company of the salt-to-chip conglomerate, could impact the philanthropic mandate of the group and “we’re going to hope to persuade them (the RBI) to look at our case once again.”
During an interaction at an event with Arnab Goswami, founder and editor-in-chief of Republic TV, when asked if he believed the philanthropic mandate of the group will change if the holding company would get listed, Noel Tata replied: “It could change.”
Currently, Tata Trusts and its associate trusts cumulatively hold over 66% stake in Tata Sons, with SP Group holding over 18% stake and a clutch of Tata Group entities hold double-digit stake in Tata Sons.
On whether the new proposal of merging two unlisted subsidiaries, Tata Electronics Systems Solutions Private Limited (TESS) and Tata Consulting Engineers (TCE), into Tata Sons would get the banking and regulator’s nod, Noel Tata replied: “Absolutely.”
The proposal, sent by Tata Trusts to Tata Sons board chairman N. Chandrasekaran, will change the non-bank core investment company into a company that will earn most of its income from operating businesses rather than financial assets. In doing so, Tata Sons will come out of the RBI’s purview, as the new merged entity will have operating revenues of ₹105,043 crore, or 64.3% of total income, well above its income from financial assets of ₹40,072 crore. Hence, it will no longer meet the principal business criteria that define an NBFC.
While the Trusts have sent a copy of the proposal to the Reserve Bank of India as well, the plan first needs to be approval by the Tata Sons board, which itself is fighting against the Tata Trusts chairman over the re-appointment of Chandrasekaran, whose term ends early next year, and has also supported the RBI’s diktat to list Tata Sons.
When Goswami asked whether the merger is permitted under the RBI's rules, and whether “you’re going to fight for this”, Noel Tata said: “We’re going to hope to persuade them (the RBI) to look at our case once again.”
The Tata Trusts chairman said he expected the Tata Sons board to review and, if necessary, modify and engage with the regulator, as the Trusts believe that the merger is a solution that would enable Tata Sons to avoid a listing. “It really is a solution. It's not rocket science. It's a solution that takes us back to our roots,” Noel Tata said at the event.
Tata Trusts' mandate
Noel Tata argued that the mandate of the trusts is to carry on with social development. He quoted JRD Tata to emphasise on the point: “When JRD Tata was asked, 'What's the strategic plan for Tata Sons?' He just answered it in three words: 'What India needs'.”
The Tata Trusts chairman pointed that as a listed entity with profit-seeking investors on the cap table whose primary interest would be to ensure that their investment grows quarter by quarter, managing these two contradictions would be a challenge. “We believe that the operating companies are all public companies, and they manage that contradiction. They don't have to manage the contradiction because they're there to give a return to the people who've invested in them. But the dividend that comes from them should not have to face the same quarter by quarter returns that we (Tata Sons) need to do,” pointed out Noel Tata.
He also emphasised that in the past whenever any group companies faced challenges, Tata Sons has always played a critical role. “There are times in the past 50 years that one or the other company has got into got itself into trouble, and Tata Sons has always been there as a backstop. And banks and lending agencies and shareholders and suppliers have always taken comfort from the fact that Tata Sons stands behind all the companies in the group.”
He said his bigger worry is that post-listing Tata Sons, individual shareholders may not be willing to invest into companies that are in trouble? “These are things which we believe will change the fundamental fabric of the way this group has run over the last 150 years, and that's the message that we're trying to get across to the Reserve Bank of India that we should try and maintain this,” explained Noel Tata.