RBI Mandate to Spur Three Additional NBFCs to Go Public Within a Year

India IPO

Updated Sep 04, 2024

Investment bankers have pinpointed Tata Capital Financial Services, HDB Financial Services, and Aditya Birla Finance Ltd.

RBI Mandate to Spur Three Additional NBFCs to Go Public Within a Year

The anticipated initial public offering (IPO) of Bajaj Housing Finance Ltd. is sparking a trend among non-banking financial companies (NBFCs), with three other major NBFCs expected to follow suit within the year to meet the Reserve Bank of India's (RBI) listing requirements.

Tata Capital Financial Services Ltd., HDB Financial Services Ltd. (the NBFC arm of HDFC Bank Ltd.), and Aditya Birla Finance Ltd. are considered likely candidates for upcoming public offerings.

Sachin Mehta, Director of Investment Banking at Anand Rathi Advisors, notes that the demand for high-quality businesses in the capital market suggests that more NBFCs will pursue listings. This move not only addresses the RBI's mandate but also provides these companies with the opportunity to raise funds for growth post-listing.

According to RBI guidelines, Tata Sons, Tata Capital Financial Services, Piramal Capital and Housing Finance, HDB Financial Services, and Aditya Birla Finance must list within the year as they fall into the 'upper layer' category of NBFCs. While Piramal Capital and Housing Finance will merge with Piramal Enterprises, Tata Sons’ potential IPO could significantly impact the market, drawing substantial domestic and global interest due to its status as the holding company of a major conglomerate.

Dharmesh Mehta, CEO of DAM Capital, predicts that Tata Sons' IPO would be a landmark event in India’s equity capital markets, attracting strong interest. Analysts estimate that even a small stake in Tata Sons could infuse over Rs 55,000 crore into the market, boosting liquidity and trading volumes.

Despite these optimistic projections, Tata Sons has reportedly applied to the RBI to voluntarily surrender its registration to evade mandatory listing. The RBI's response to this application will be closely watched.

The RBI's revised scale-based regulation (SBR) framework, introduced in October 2021 to mitigate systemic risks and improve governance following the IL&FS and DHFL crises, categorizes NBFCs into four layers based on size, activities, and risk. Upper layer NBFCs are required to list within three years of their designation. The RBI's list of upper layer NBFCs, updated in September 2022 and again in 2023, currently includes 15 companies, with Bajaj Housing Finance preparing for its Rs 6,560-crore IPO on September 9.

As the market awaits further IPOs, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services Ltd., emphasizes the need for more high-quality IPOs to stabilize the overheated mid and small-cap segments.