RBI Approves Tata Capital-TMFL Merger, Paving the Way for Major Financial Growth

The Reserve Bank of India (RBI) has approved the merger between Tata Capital, which is not listed on the stock exchange, and Tata Motors Finance (TMFL), clearing the path for the creation of India’s 12th largest non-banking finance company. 

According to regulatory filings, the RBI gave its “no-objection” to both companies earlier this month. As part of the merger deal, Tata Capital will issue shares to TMFL shareholders, leading to Tata Motors owning a 4.7% stake in the combined company.

The Competition Commission of India approved the merger in September. A legal source mentioned that the banking regulator’s approval is crucial for progressing with the merger process.

The RBI’s approval is crucial for Tata Capital, which is expected to go public by September next year. This follows an earlier directive from the regulator that all non-banking financial companies classified as “upper layer” must list their shares by September 2025. 

As of March 31, 2024, Tata Sons, the parent company of Tata Group, owns 92.83% of Tata Capital’s shares, with the remaining shares mostly held by other Tata Group companies and trusts. Through this merger, Tata Capital aims to attract more customers in the fast-growing commercial vehicle and passenger car financing sectors. The company also plans to improve customer service with digital solutions and offer new growth opportunities for its employees. 

Over the last five years, Tata Sons has invested ₹6,097 crore in Tata Capital, showing its commitment to expanding the lending business and transforming it into a retail-focused financial services firm. Tata Capital also provides financial support to various Tata Group companies, including suppliers, vendors, and dealers.

Additionally, Tata Sons plans to buy a 12.65% stake in Tata AutoComp Systems from Tata Capital for ₹2,122 crore, valuing the company at ₹16,800 crore. Currently, Tata Sons holds a 40% stake, and Tata Motors owns 26% in Tata AutoComp, a company that makes automotive components.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.