Tata Sons, the holding company of the Tata group, plans to invest Rs 12.5 billion in Tata Capital as equity by March next year. It has already invested an equal amount in July this year. This is supposed to help the company meet capital adequacy norms.
The fund infusion was also necessary so that various financial subsidiaries of the Tata Capital could grow their lending businesses, identified as a key priority area by Tata group Chairman N Chandrasekaran. The equity capital infusion planned in the current financial year (2018-19, or FY19) is almost equal to Rs 28 billion of the total equity capital infused since Tata Capital’s inception, bankers said.
When contacted, a Tata Sons spokesperson declined to comment.
In the past three years, Tata Capital Finance Services, a subsidiary of Tata Capital, has written off its debt to the tune of Rs 12 billion. The company was in news
for writing off loans given to the Siva group in FY18. These loans were given against shares of unlisted Tata Teleservices.
The Siva group, led by entrepreneur C Sivasankaran, a close confidant of Tata group patriarch Ratan Tata defaulted on loans to both Tata Capital and to Tata Sons. According to court filings, the Siva group owes Rs 6.94 billion to Tata Sons in 2016 for the buy-back of shares from Japanese telecom major, NTT DoCoMo.
This led to Tata Sons having to pay the money. In turn, they made a claim against the Siva group. This amount has been written off by Tata Sons. Similarly, the Siva group took loans from Tata Capital worth Rs 2 billion and defaulted. These loans have been written off by Tata Capital.
Tata Capital and its subsidiaries reported net worth, on a consolidated basis, of Rs 66.47 billion on March 31, compared to Rs 60.44 billion at the end of FY17. The capital infusion in the current fiscal year will strengthen its net worth, said bankers.
Tata Capital Financial Services (TCFS), a non-banking financial company and also a subsidiary of Tata Capital, plans to raise up to Rs 750 billion by issuing non-convertible debentures for lending, repayment of debt, and for capital expenditure.
At the end of FY18, both TCFS and Tata Capital Housing Finance’s overall capital adequacy ratio was 16.68 per cent and 17.22 per cent, respectively.
At the same time, the gearing — debt related to its equity capital — of TCFS was 6.3 times, while of Tata Housing Finance was 10.3 times. The consolidated gearing of the Tata Capital’s companies
was 8 times as of March-end this year.
Its consolidated gross non-performing assets (NPAs) and net NPAs stood at 2.4 per cent and 0.7 per cent, respectively. The gross NPAs of Tata Capital Finance was 3.3 per cent as of March 31 this year, down from 4.9 per cent in March 2017 — thanks to the large write-offs.
The infusion of funds by Tata Sons comes at a time when the group holding company itself reported a flat net profit of Rs 8.73 billion in the fiscal year ended March 2018 on the back of a 6 per cent rise in revenues at Rs 81.56 billion. The flat profits were mainly because of large provisions of Rs 119 billion for losses in Tata Teleservices.
Tata Sons has promised to invest more funds in the financial services business by participating in the buyback of software exporter, Tata Consultancy Services. As on July 31, 2018, Tata Sons’ standalone cash and cash equivalents were about Rs 55.87 billion which would be used to fund its growth plans, bankers said.