RBI Mandate To Drive Three More NBFCs To Launch IPOs Within A Year

The upcoming Bajaj Housing Finance Ltd. initial public offering has initiated a wave of listing in the non-banking financial companies. Three other prominent NBFCs are expected to launch IPOs within a year to comply with the Reserve Bank of India's mandatory listing requirements.

Investment bankers have identified Tata Capital Financial Services Ltd., HDB Financial Services Ltd. (the NBFC arm of HDFC Bank Ltd.), and Aditya Birla Finance Ltd. as the likely candidates for upcoming public offerings.

"Given the appetite in the capital market for good quality businesses, and subject to valuations we will definitely see quite a lot of NBFCs going for listing. This is expected; not just to satisfy RBI's requirement to list, but also to have the ability to keep raising money for growth once the company is listed," said Sachin Mehta, director, investment banking, Anand Rathi Advisors.

Tata Sons, Tata Capital Financial Services, Piramal Capital and Housing Finance, HDB Financial Services, and Aditya Birla Finance are required to list within the year due to their status as 'upper layer' NBFCs under RBI guidelines.

While, Piramal Capital and Housing Finance is set to merge with Piramal Enterprises, the IPO of Tata Sons could be a game-changer for the market, offering significant upside potential for investors, according to analysts.

The listing of Tata Sons may attract both domestic and global interest, given the stature of Tata Sons as the holding company of one of India’s largest conglomerates.

"If there was a listing of Tata Sons at some point, it would be a marquee event for India’s fast-growing equity capital markets. Given the offering of its kind from the most reputed groups in India, there would definitely be strong global and domestic interest for such an offering," said Dharmesh Mehta, chief executive officer of DAM Capital.

Market experts also predict that a Tata Sons IPO could unlock significant shareholder value, with analysts estimating that even a 5% stake could inject over Rs 55,000 crore into the market, increasing liquidity and trading volume.

However, despite these optimistic projections, Tata Sons has reportedly applied to the RBI to voluntarily surrender its registration certificate, aiming to avoid mandatory listing.

Now, all eyes would be on RBI for its stand on Tata Sons' application.

The RBI introduced a revised scale-based regulation framework in October 2021 to address systemic risk and strengthen governance.

This came against the backdrop of the collapse of IL&FS in 2018, followed by the downfall of DHFL, which had a ripple effect on the entire financial system, particularly causing significant liquidity challenges.

Under the SBR framework, NBFCs were categorised into four layers—base layer, middle layer, upper layer, and top layer—based on their size, activities, and risk levels. Also, RBI mandated that NBFCs categorised as upper layer NBFC have to be listed within three years of them being designated as an UL NBFC.

RBI issued its list of 16 UL NBFCs in September 2022 and the list was subsequently updated in 2023, whereby Shanghvi Finance was dropped.

"As per the last RBI release, there are 15 upper layer NBFCs, out of which Piramal Capital & Housing will merge with Piramal Enterprises and Tata Sons is likely to consider all options to avoid listing," Anand Rathi Advisors' Mehta said.

Of the remaining names, nine are already listed on the bourses and Bajaj Housing will hit the market soon. Therefore, there are only three candidates who have to go public as per RBI's requirement.

Bajaj Housing Finance is set to float its Rs 6,560-crore initial share sale on Sept. 9. The share sale is being conducted to comply with RBI's regulations, which require UL NBFCs to be listed on stock exchanges by September 2025.

Markets need many more quality IPOs like Bajaj Housing Finance, according to V K Vijayakumar, chief investment strategist, Geojit Financial Services Ltd. More supplies of quality stocks can cool this market, which is overheated in the mid and small-cap segments. There is lot of appetite for reasonably priced IPOs.

(With inputs from PTI).