| The move will enable Tata Motorfinance, which handled a total business of Rs 5,500 crore last year, mainly by financing Tata Motors' vehicles, to tap the opportunities that arise when the new car is launched in 2008. |
| Auto analysts said Tata Motors expected its small car sales to cross 1 million within a few years of its launch. The potential for this segment is expected to be 3.5 million by 2011. |
| "Being an automobile company, Tata Motors should not keep debt beyond a prescribed limit in its balance sheet. Hence the move to separate the automobile financing arm into a separate company," they added. |
| However, the entire portfolio of the auto financing business of Tata Motors would not be transferred to the new entity. |
| Tata Motors had availed of tax benefits due to losses incurred by the automobile finance business. "These assets will continue to be on the Tata Motors' books," sources said. |
| Sources close to the development said the process of spinning off Tata Motorfinance into a separate company might start next month. Tata Motors had applied to the Reserve Bank of India (RBI) seeking permission for a non-banking finance company (NBFC) licence. |
| A Tata Motors spokesperson said the NBFC licence would help facilitate the ambitious growth plans of Tata Motorfinance. "The company will make appropriate announcements in due course," he added. |
| The move gains significance on another count. The Tata group had sometime back closed down Tata Finance, its beleaguered NBFC arm, which had a huge capital market exposure. |
| In other words, the group is ready to revisit the NBFC turf even as the Reserve Bank of India is not willing to grant banking licences to corporations. |
| The Tatas had initially infused fresh capital and tried to revive Tata Finance, but it was ultimately closed down, and its auto finance assets were transferred to Tata Motorfinance last year. |
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