Tata Capital IPO: Flagship NBFC of Tata Group Gears Up for Listing, Risks and Growth Prospects Decoded

Tata Capital, the flagship NBFC of the Tata Group, is preparing for a highly anticipated IPO by September 2025, as mandated by Reserve Bank of India regulations. The IPO combines a fresh issue and offer for sale, making it one of the top 5 largest Indian IPOs in the last decade.

Tata Capital IPO Details and Strategic Objectives

As per news reports, the IPO comprises 47.58 crore shares, including a 21 crore fresh issue and an offer for sale of 26.58 crore shares. Promoter Tata Sons is set to offload 23 crore shares, while International Finance Corporation will sell 3.58 crore shares. The funds from the fresh issue aim to strengthen Tata Capital’s Tier-1 capital and support future lending needs. A small portion is also reserved for eligible employees, capped at 5% of post-issue capital.

Strength from the Tata Motors Finance Merger

The merger with Tata Motors Finance, effective May 8, 2025, boosted Tata Capital’s asset base and expanded its reach across geographies. This consolidation improves operational efficiency and enhances product and service offerings across retail and wholesale segments.

Read More: Tata Capital Plans $2 Billion IPO in September, Targets $11 Billion Valuation!

Strong Market Position but Credit Risk Remains

Tata Capital had a gross loan book of ₹2,26,550 crore as of March 2025, making it India’s 3rd largest diversified NBFC. Despite strong AAA ratings from Crisil, ICRA, and India Ratings, the gross Stage 3 loan ratio increased slightly to 1.9% in FY25 from 1.7% in FY23. The provision coverage ratio dropped to 58.5% in FY25 compared to 77.1% in FY23, raising concerns that defaults may rise.

High Retail Exposure and Rising Cost of Borrowing

Retail finance formed 62.3% of gross loans in FY25, with significant exposure to real estate loans at 33.8%. If there are adverse changes in these sectors, Tata Capital may face a decline in asset quality. The average cost of borrowing also rose from 6.6% in FY23 to 7.8% in FY25, which could pressure profitability if funding costs remain high.

Conclusion

Tata Capital’s IPO signals a pivotal expansion phase backed by strong fundamentals, geographical scale, and diversified offerings. However, investors should remain aware of rising credit risk, regulatory exposure, and sector-driven uncertainties before considering participation.

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