Shapoorji Group Seeks 3-year Reprieve for NBFC

Shapoorji Pallonji Group
has asked the
Reserve Bank of India
(RBI) to give its unit,
Sterling Investment Corp
, three years to meet enhanced
capital adequacy norms
in relation to a recent bond issue, said people with knowledge of the matter.
Sterling was recently reclassified as a mid-layer NBFC, facing stricter regulatory requirements. RBI has raised concerns over its capital adequacy — tier I-II capital ratios are required to be at least 15% of risk-weighted assets.
SP Group has just raised ₹28,500 crore ($3.3 billion) backed by Sterling Investment, a non-banking finance company (NBFC) holding 9.18% stake, valued at $18.6 billion, in Tata Sons. The collateral is meant to reassure investors and support the deal. Shares held by Sterling reflect the historical value of
Tata Sons
shares; true value will be reflected only in the event of a listing of the Tata group holding company, a banker said.
SP Group holds 18.37% in Tata Sons, valued at over $37.4 billion (₹3.2 lakh crore).
Shapoorji Pallonji Group has pledged the entire stake as collateral in multiple fundraising transactions.
The group will have to secure RBI approval for the three-year deferment within four months of the issuance date, said people close to the matter, failure to do which would constitute a default on the borrowing.
The deal was signed on May 15 and settlement is expected to close on May 21, as reported by ET.
'Within four months of the issuance date, SP Group will have to secure approval from RBI for an extended timeline to meet capital adequacy norms under current NBFC regulations,' SP Group has informed investors, according to an official close to the matter.
The deal includes stringent creditor protection clauses, including a Most Favoured Nation (MFN) clause—mandating a coupon step-up if future borrowings are priced higher—and a 1% coupon increase in case of covenant breaches. The group faces a repayment obligation of ₹51,000 crore after three years, having recently raised money at a steep yield of 19.75%.
As part of the financing structure, SP Group has committed to listing real estate arm Shapoorji Pallonji Real Estate, and raising ₹13,000 crore through asset monetisation within 24 months. Any delay in meeting this timeline would also trigger a default.
Large credit funds including Ares Management, Farallon, Davidson Kempner, Cerberus, Pimco, and BlackRock are participating in the debt raise, with Deutsche Bank acting as the sole arranger.
The final redemption date for the debentures will be the earlier of—one month prior to the expiry of the RBI extension timeline for capital to risk weighted assets ratio (CRAR) compliance, or three years from the issue date, according to the term sheet reviewed by people cited earlier.
SP Group declined to comment.
The transaction implies a loan-to-value (LTV) ratio of roughly 14.7%, according to the company's communication to investors. In addition to the Tata Sons stake, the group has also pledged shares of Shapoorji Pallonji Real Estate, valued at $3.2 billion, as part of the funding arrangement.
An official close to the lenders said none of them are disputing or discounting the value of the Tata Sons shares.
'Of course, lenders will demand their pound of flesh as the shares are seen as illiquid as of today,' the person said. 'The regulator's decision is awaited on the matter, which will clearly change everything for lenders and investors. There is substantial value in the real estate monetisation plan, which will also serve as liquid collateral post-listing.'
SP Group has also urged RBI to support a public listing of Tata Sons, stating that such a move would benefit all stakeholders, including the public. According to people aware of developments, the group has formally communicated this view to the regulator and is relying heavily on the possible listing to improve its financial position.
Struggling under a substantial financial burden, SP Group also expressed its concerns to Tata Sons about not being informed of the company's decision to surrender its registration as an upper layer core investment company to RBI. As an 18.37% minority shareholder in Tata Sons, SP Group had reportedly raised its worries about being excluded from discussions on such a strategically important decision.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Mint

an hour ago

• Mint

Centre links part of state capex loans to new reforms in land, and digitization

New Delhi: The Centre has drawn up a new set of reform-linked conditions for states to access a portion of the ₹ 1.5 trillion interest-free capex loan for FY26, two people aware of the matter said, with a focus on digitization, governance, land reforms and urban planning. 'States will now be required to implement targeted reforms in key areas including digital public infrastructure (DPI) for agriculture, improvements in financial management systems, better urban planning, and streamlined land-related processes," said the first person mentioned above, speaking under the condition of anonymity. Of the ₹ 1.5 trillion earmarked for FY26, around 60% will be unconditional or linked to infrastructure spending, while the remaining 40% will be tied to reforms that states and Union Territories must undertake to access the funds, the person mentioned above added. Interest-free loans with a tenure of 50 years have played a vital role in stimulating capital spending by states and catalyzing the economy since the pandemic. As things stand, states account for 20–25% of India's total infrastructure spending, a critical priority for the government. 'This year's reform agenda puts a sharp focus on accelerating digital transformation in agriculture through federated farmer databases, digitized land records, and digital crop surveys,' the second person mentioned above said, requesting anonymity. Meanwhile, the central government has made Aadhaar-based Direct benefit transfer (DBT) integration with the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) mandatory across all state-run schemes. "Land and regulatory reforms remain a key thrust as states are expected to enable flexible mixed-use development, digitize land use change approvals, rationalize industrial road width norms, and amend building rules to minimize land loss. These are critical steps to boost manufacturing, agriculture, and ease of doing business," the second person mentioned above said. 'The goal is to ensure that capital investment is not just about creating assets, but about improving the way states govern and deliver,' the person added. Launched in FY21, the Centre's 50-year interest-free capex loan scheme has played a key role in driving state-led capital spending and reviving the post-pandemic economy. For FY26, ₹ 1.5 trillion has been earmarked to accelerate infrastructure development and support state-level projects. Of this, about 60% will be either unconditional or tied to infrastructure spending, while the remaining 40% will be linked to specific reforms. The conditions states had to meet in the past two years to avail of the central loans included reforms in the housing sector, providing incentives for scrapping old government vehicles and ambulances, reforms in urban planning and urban finance, increasing housing stock for police personnel, and setting up libraries with digital infrastructure at panchayat and ward levels for children and young adults. Finance minister Nirmala Sitharaman ramped up allocations to ₹ 1.5 trillion each for FY25 and FY26—up from ₹ 1.10 trillion in FY24. However, the FY25 outlay was later revised to ₹ 1.25 trillion due to slower-than-expected spending in the first half of the fiscal, which was largely due to elections. A spokesperson of the Ministry of Finance didn't respond to emailed queries.

Business Standard

2 hours ago

• Business Standard

RBI, banks to launch DPIP platform to combat rising digital payment frauds

In a bid to rein in the increasing incidence of digital payment frauds, major public and private sector banks have been roped to develop Digital Payment Intelligence Platform (DPIP) as a Digital Public Infrastructure (DPI) under the supervision and guidance of the RBI. The proposed platform seeks to bolster fraud risk management by facilitating real-time intelligence sharing and gathering, thereby preventing fraudulent digital transactions, sources said. According to sources, the institutional structure of the proposed entity would be created with the help of both public sector and private sector lenders as fraud is a common monster. Earlier this month, a high-level meeting in this regard was convened to finalise the structure of the platform where senior bank officials, RBI officials and other stakeholders were present. Since the issue is one of the top agenda for both the government and the Reserve Bank of India (RBI), sources said the platform should become operational in the next few months. Once operational, DPIP will collect and analyse data from various sources to identify potential threats and prevent fraudulent activities. By enabling real-time data sharing, the platform will help prevent scams and ensure secure transactions. Reserve Bank Innovation Hub (RBIH) has been assigned for building a prototype of DPIP in consultation with 5-10 banks. It is going to leverage advanced technologies to curb payment-related frauds. RBI, in June last year, formed a committee, chaired by A P Hota, former MD & CEO of NPCI, to examine various aspects of establishing this digital public infrastructure. According to the latest annual report of the RBI, there has been a significant surge in bank frauds, with the amount involved rising nearly three times to Rs 36,014 crore in FY25, compared to Rs 12,230 crore in the previous year. Of this, as much as Rs 25,667 crore worth of frauds were reported by public sector banks as against Rs 9,254 crore a year ago. Frauds have occurred predominantly in the category of digital payments (card/internet) in terms of the number and primarily in the loan portfolio (advances) in terms of value, it said. While card/internet frauds contributed maximum to the number of frauds reported by private sector banks, frauds in public sector banks were mainly in advances, it said.

Time of India

3 hours ago

• Time of India

Reliance on informal finance persists despite multiple financial inclusion measures: Report

Non-institutional channels of borrowing such as moneylenders, shopkeepers, and family constitute a major chunk of borrowing for the poor despite several initiatives to promote financial inclusion, shows a study by Piramal Enterprises . To enhance the share of formal finance, Debopam Chaudhuri, Chief Economist, Piramal Enterprises, says that non-banking finance companies can step in to bridge this gap, provided they are given access to cheaper resources such as the ability to raise fixed deposits and a liquidity backstop window by the RBI to secure short-term loans for top-tier NBFCs. The findings of the report show micro-business owners and economically weaker segments (EWS and LIG) remain underserved in terms of access to formal credit , while banks and finance companies are targeting Tier 2 and Tier 3 towns for financial inclusion. 'These segments of Bharat continue to depend heavily on informal channels, with banking and fintech innovations yet to significantly make a meaningful impact on their access to formal credit,' Chaudhuri stated. The economic aftermath of the COVID-19 pandemic triggered major shifts in borrowing behaviour. Reverse migration increased informal and agricultural employment in lower-income states, further boosting dependence on informal credit. Live Events 'Over 55% of daily-wage households reported active informal loans, even as formal lenders became more cautious due to rising credit risk,' Chaudhuri said. The report also reveals stark state-level disparities. While Kerala, Tamil Nadu, and Karnataka show strong formal credit presence, driven by gold loans and fintech usage, states like Bihar, Jharkhand, and West Bengal have over 57% of households relying on informal borrowing. Notably, Punjab has transitioned from a 'high-income, low-borrowing' profile in FY19 to a 'high-borrowing, low-income' state, implying increasing reliance on informal credit due to lower penetration of financial inclusion. Data indicate that although there were early signs of a shift from non-institutional to institutional borrowing between FY15 and FY19, the disruptions caused by COVID-19 and the accompanying rise in unemployment reversed this trend. Many borrowers were compelled to return to informal lenders, a pattern that coincided with large-scale urban-to-rural reverse migration and a subsequent increase in agricultural employment triggered by the 2020 lockdowns. At the global level, while other economies, both developed and developing, witnessed a declining trend in the share of non-institutional credit, India observed rising incidences of non-institutional lending vis-à-vis institutional lending. In 2021, borrowing from non-institutional sources was 2.63 times that of borrowing from institutional sources in India, compared to 0.6 times in Brazil and 0.27 times in the USA. 'This implies that for every two people borrowing from institutional sources, five people were opting for non-institutional sources of borrowing,' Chaudhuri said. The data suggest rising risk aversion of institutional lenders to fund daily-wage workers with no long-term work commitments, which has prompted wage labourers to rely on non-institutional moneylenders. More than 55% of households associated with this profession have active loans, largely from non-institutional sources, highlighting both the demand for loans and the lack of supply from institutional sources, Chaudhuri said in his report titled Prevalence Of Non-Institutional Borrowing Among Indian Households: A Pre and Post COVID-19 Analysis. Self-employed entrepreneurs are increasingly relying on non-institutional sources, with the annualised growth of households borrowing from such sources rising at a much faster pace than those borrowing from institutional lenders. 'This depicts increased risk aversion among institutional players to support small businesses,' the report said. In the case of industrial workers and white-collar professionals, incidences of non-institutional borrowing are slowing down due to the advent of new-age fintech lenders and easier access to institutional credit. These cohorts appear to be the biggest beneficiaries of the democratisation of finance currently underway in India, notes the report. Over the last decade, multiple policy initiatives resulted in 77.5% bank account ownership among adults by 2021. Measures like the India Stack, policy interventions such as Jan Dhan (2014), Mudra (2015), Svanidhi (2020), and Vishwakarma (2023) Yojanas, along with the arrival of fintech players who harnessed technology to curate financial services for the previously unbanked population, have contributed to this progress. The data used for this analysis were sourced from the Centre for Monitoring Indian Economy's (CMIE's) Consumer Pyramid Household Survey (CPHS) dataset. This private agency conducts high-frequency, large-scale surveys that have become increasingly popular for assessing short-term changes in the economic conditions of Indian households. The report says NBFCs can facilitate migration from informal to formal sources of borrowing if they are supported in reducing their funding costs, which would enable passing on to end borrowers,' Chaudhuri said. Measures such as a liquidity backstop window by the RBI to secure short-term loans for top-tier NBFCs can improve their credit ratings and reduce borrowing costs. Additionally, granting deposit-taking licences to well-managed, large NBFCs, with appropriate regulatory safeguards, would allow these institutions to diversify funding sources beyond banks and raise long-term liabilities at lower costs, thereby reducing ALM risks. A dedicated refinancing window for NBFCs is urgently needed to alleviate liquidity concerns. Furthermore, simplifying the ease of doing business for these institutions by lowering the loan amount threshold for enforcing security interests under the SARFAESI Act from ₹20 lakh to ₹1 lakh would be highly beneficial. 'These reforms would equip NBFCs with greater capacity to expand their reach, serving a larger portion of India's population who still struggle to access formal financial services,' said Chaudhuri.