Global rating agencies Fitch Ratings and S&P Global have assigned first-time long-term foreign and local currency issuer default ratings of ‘BBB-’ to Tata Capital with a stable outlook, driven by their view that parent Tata Sons will provide extraordinary support to the non-banking finance company that is increasingly becoming important to the group, its forthcoming IPO and its investment in subsidiaries.

Fitch has also assigned a shareholder support rating of ‘bbb-’, while S&P Global has ‘A-3’ short-term issuer credit rating to Tata Capital.

Commenting on the significance of Tata Capital to the Tata Group, Fitch said that its view was “underpinned by TCL’s profile as the largest entity within Tata Group’s financial services segment” that has been identified as a growth driver for the group. Tata Sons ability to provide the required support, the group’s significant 96.6 per cent stake in the NBFC and shared branding are the other links.

S&P Global said that its stable outlook on the long-term rating on Tata Capital reflected its view that “the company will continue to benefit from its promoter linkages and maintain a good capital position and average asset quality over the next two years.”

Growth driver

Fitch pointed out that Tata Sons has direct oversight of TCL’s strategic decision making and a steady record of capital investments in the subsidiary. It also said that TCL’s increasing contribution to Tata Sons’ consolidated profitability underscored its value to the group. “We believe that there would be potential implications for future Tata Group ventures if TCL were to default.” It said that Tata Sons had also supported TCL’s balance-sheet growth through regular equity infusion when needed.

There are limited but direct infrastructural synergies between TCL and the Tata Group. “TCL’s operations are commercially oriented and there is significant management autonomy in its daily operations. TCL plans to increase group synergies by meeting more of the group’s captive finance needs in the longer run,” Fitch said, adding that this is likely to remain a small proportion of TCL and Tata Sons Private Ltd’s (TSOL) overall business.

“Being part of the big conglomerate has also enabled it to grow rapidly and build its franchise over the past few years,” said S&P Global. “Tata Capital leverages the Tata group’s ecosystem for lending to suppliers of Tata group companies.”

Tata Capital is among India’s stronger finance companies with a diversified loan book of $16 billion as of September-end and a low gross NPL ratio of 1.6 per cent. Fitch said that it expected the ratio to remain at the lower end of rated peers over the medium term. S&P said that it had a granular and diversified loan book, with more focus on the retail asset class. Its profitability with return on adjusted assets of about 2.1 per cent in the first half of fiscal 2024 was comparable to the industry average.

“We believe Tata Capital will maintain good capitalization. Tata Capital’s capitalization will likely remain strong despite our projection of above-average loan growth,” S&P added. 

Earlier this year, Tata Capital absorbed two key subsidiaries, Tata Capital Financial Services and Tata Capital Cleantech Ltd following the designation of TCFSL as an Upper Layer NBFC, warranting greater regulatory requirements, including a public listing by September 2025.