Tata Motors is set to overhaul its financial structure by spinning off its vehicle financing subsidiaries operating under Tata Motors Finance and merging them into Tata Capital, as reported by The Economic Times. This strategic decision coincides with Tata Capital's plans to launch an initial public offering (IPO) by the end of the year.

The proposed reorganization involves a share-swap deal in which Tata Motors will exchange its stake in Tata Motors Finance for shares in Tata Capital, held by Tata Sons, the group's holding entity. This transaction will result in Tata Motors securing a minority stake in Tata Capital, with Tata Motors Finance being valued between Rs 15,000 crore and Rs 20,000 crore, equating to 2.6 to 3.5 times its FY23 book value of Rs 5,625 crore. An official agreement is expected to be announced soon, with Bank of America acting as the advisor for Tata Motors.

Tata Capital, which is 95% owned by Tata Sons, is a major player in the financial services sector within the Tata Group. Its product offerings include commercial and consumer loans, home loans, car loans, education loans, and loans against property, along with wealth management services, private equity, and the distribution of Tata Cards.

In alignment with Reserve Bank of India (RBI) mandates, Tata Capital Financial Services and Tata Sons are classified as 'Upper layer' non-banking finance companies (NBFCs) and must be listed by September 2025. This restructuring is part of Tata Capital’s broader strategy to streamline its financial services into a single entity.

For Tata Motors, this move will help reduce its debt load as the company continues to restructure its operations by separating its passenger vehicle and commercial vehicle businesses. By selling Tata Capital shares during the IPO, Tata Motors expects to realize substantial value. This strategic move aims to decrease Tata Motors' gross debt, of which 35% is net automotive debt, amounting to Rs 43,700 crore. This reduction will enhance financial clarity and stability, especially during downturns in the commercial vehicle market, which typically lead to higher provisions.