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Tata Mistrust

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Bombay House has seen its share of succession drama over the past century and more, but the latest season takes the cake for the number of twists in plots.

Tata Sons, the holding company of the Tata Group, has moved to keep N. Chandrasekaran in the chairman’s role for another five years. However, Tata Trusts, the holding company’s majority shareholder, says the move is legally invalid.

For a group that usually keeps disagreements behind closed doors, the pieces are now very much in public view.

The immediate trigger was the September 17 meeting of the Tata Sons board.

Chandrasekaran had informed the board on August 12 that he would not seek another term when his current tenure ends on February 20, 2027. But Tata Sons’ Nomination and Remuneration Committee subsequently asked him to reconsider. He agreed, and the board then voted by a majority to reappoint him for another five years. Tata Sons said it would now initiate steps to comply with applicable Reserve Bank of India guidelines and seek guidance from the RBI, Tata Trusts and other stakeholders.

The twist is that Tata Trusts believes the board could not legally make that move. Noel Tata, chairman of Tata Trusts and one of its nominee directors on the Tata Sons board, voted against Chandrasekaran’s reappointment. The Trusts argue that Tata Sons’ Articles of Association require a majority of the Trusts’ nominee directors to support the appointment or reappointment of a chairman. Since Noel Tata opposed the proposal, the Trusts called the resolution a “legal nullity”. It also said a legal opinion from former Chief Justice of India D.Y. Chandrachud supported its interpretation.

That makes this less a routine succession squabble and more a contest over who gets the final move at the top of India’s best-known business house.

There is another layer of irony. Tata Sons says the Trusts had themselves unanimously backed Chandrasekaran for another five-year term in July 2025, praising his stewardship of the group since 2017. The Tata Sons board agreed in principle a few months later. But formal approval stalled in February 2026 for want of unanimity and remained unresolved through meetings in May and June. Chandrasekaran then decided not to seek another term.

Tata Trusts says the decision had attained finality. It formally accepted Chandrasekaran’s decision the next day and asked Tata Sons to start the process of forming a selection committee for his successor. Its position is that once the chairman publicly stepped away and the succession machinery began moving, the clock could not simply be wound back.

Tata Sons clearly sees it differently. Its board has effectively said: the game is not over yet.

The appointment isn’t the only issue of disagreement. Tata Sons has also said it will consider a public listing, in line with the Reserve Bank of India’s mandate. But Tata Trusts remains opposed to the idea. A listing would benefit Shapoorji Pallonji Group, the second-largest shareholder in Tata Sons with an 18.4% stake, with Tata Trusts saying the infrastructure and construction conglomerate plans to sell a part of its stake worth Rs 25,000 crore.

For investors in Tata group of companies, the immediate issue is not Chandrasekaran’s appointment or his operating record. The bigger question is governance. Tata Sons sits at the centre of a sprawling group with interests ranging from software and automobiles to steel, hotels, aviation and consumer businesses. A prolonged disagreement between the holding company’s board and its controlling shareholder over who has the authority to appoint the chairman and whether to go public could create uncertainty well beyond the boardroom.

For now, Chandrasekaran has a board resolution behind him. Tata Trusts says that resolution has no legal standing and wants the succession process to continue.

So, this is not the endgame. At Bombay House, the next move could matter more than the last one.

Unified Payments, Divided Opinions

 

Let’s now move on to another controversy that hogged the headlines this week—fees on Unified Payments Interface (UPI) transactions.

For years, one of UPI’s biggest selling points was also its simplest: payments were free. That proposition helped turn a government-backed digital system into an everyday habit, from neighbourhood kiranas to large online merchants. Now, the arrival of a Merchant Discount Rate on select transactions has reopened an old question: who should ultimately pay for keeping that system running?

The change is significant because it cuts against the direction India took at the end of 2019. The government then made MDR zero on prescribed modes including BHIM-UPI and RuPay debit cards from January 2020, arguing that removing merchant charges would encourage digital payments. In 2025, the finance ministry was still describing zero MDR as part of the government’s strategy for promoting UPI, with budgetary incentives compensating parts of the payments ecosystem.

Seen from that history, the new framework can reasonably be viewed as a change in policy direction. But it is not quite a return to the pre-2020 world.

From October 15, a 0.4% MDR will apply to specified person-to-merchant UPI transactions above Rs 2,000. The charge is capped at Rs 300. Certain essential sectors face a flat Rs-5 charge. Person-to-person transfers remain free.

That distinction is central to the government’s defence. It says roughly 96% of merchant transactions will remain outside the MDR net. Consumers are not supposed to pay the charge, payment apps cannot impose platform fees on them, and banks have been advised to ensure merchants do not pass MDR on to customers.

So, the zero-MDR era has not exactly ended. It has acquired an asterisk.

The government’s argument is that UPI has become too large and important to depend indefinitely on budgetary support. In August, before the new rates were announced, the finance ministry said any eventual MDR would apply only to a limited set of higher-value merchant transactions and would help fund UPI’s long-term sustainability, technological investment and resilience.

That is a different policy philosophy from the one adopted in 2019. Then, the state effectively decided that lower payment costs would accelerate adoption and that banks could absorb some of the expense as cash usage declined. The latest framework accepts that the ecosystem needs a direct commercial revenue stream, at least from some merchants.

The argument now is therefore less about whether UPI is becoming “paid” and more about where the line should be drawn.

For most individual users, nothing changes. For most merchant transactions, according to the government’s numbers, nothing changes either. But for merchants above the exemption thresholds, something fundamental has changed: accepting UPI is no longer universally free.

That may look like a reversal from one angle and a recalibration from another. Either way, India has crossed an important threshold. The debate over UPI is moving from how quickly the network can grow to how a network of this scale should pay its own bills.

 

The Liquidity Turn

 

Moving on to some macroeconomic developments, the Reserve Bank of India is dealing with an unusual problem: there is too much money in the banking system.

The RBI has announced government bond sales worth Rs 1 trillion in three tranches this month to absorb some of that surplus liquidity. The first Rs 50,000 crore auction was held on September 17, followed by Rs 25,000 crore each to be held on September 21 and September 28.

Why is this important? Well, for one, this is the first time the RBI has taken such a step since November 2017.

The immediate cause is the extraordinary response to the RBI’s special foreign-currency mobilisation scheme. By August 31, the measures had mobilised $136.38 billion, including $127.23 billion through FCNR(B) deposits. Banks received rupees from the RBI when the foreign currency was swapped, adding a large amount of liquidity to the domestic financial system.

By September 9, the banking system’s liquidity surplus had risen to about Rs 10.5 trillion. It was around Rs 9.85 trillion on September 15 and, even after the RBI absorbed Rs 2.4 trillion through a variable rate reverse repo auction on September 17, the surplus stood at about Rs 7.38 trillion on September 16.

But why is high liquidity a problem? It’s because surplus liquidity can weaken transmission of monetary policy, reduce banks’ need to borrow at the RBI’s policy rate, and delay increases in lending rates.

The effect has already become visible in the overnight money market. On September 4, the weighted average call rate was 4.93%, around 32 basis points below the RBI’s 5.25% repo rate. With banks holding more cash than they need, there is less need to borrow from one another, putting downward pressure on short-term rates.

That is significant because the RBI uses the repo rate as its main policy signal. Its liquidity framework is designed to keep overnight money-market rates aligned with the policy rate, allowing changes in monetary policy to transmit to other borrowing and lending rates.

The RBI has already been using variable rate reverse repos to absorb the surplus. It absorbed Rs 3.93 trillion through one such operation on September 15 and another Rs 2.4 trillion on September 17. But these are temporary operations, with the liquidity eventually returning to the system.

Open market operations (OMO) work differently. When the RBI sells government securities, banks and other eligible investors pay the central bank, removing rupees from the system. This gives the RBI a more durable way to reduce the surplus.

There is a bond-market trade-off. More government securities entering the market can push bond prices down and yields up. The benchmark 10-year government bond yield rose to around 7.035% after the OMO announcement, while the five-year yield rose to 6.6222%.

The OMO sale itself does not change the repo rate, which remains at 5.25%. Nor does it automatically mean higher lending rates. The eventual effect on borrowing costs will depend on banks’ funding costs, deposit competition and broader market rates.

For the RBI, the immediate task is therefore not to change the monetary-policy stance, but to bring an unusually large liquidity surplus back towards normal levels and restore a closer link between its policy rate and overnight market rates.

Markets are still trying to assess what that means for the path of interest rates. For now, the RBI is dealing with a more immediate problem: ensuring that the policy rate it sets continues to guide the rates at which money actually moves through the financial system.

 

Room to Manoeuvre

 

High liquidity apart, the RBI will have to keep an eye on a few other developments that affect interest rate movements.

For one, India’s inflation picture is becoming less comfortable just as global interest rates are moving higher again.

Consumer inflation rose to 4.82% in August from 4.45% in July. It has now remained above the RBI’s 4% target for three consecutive months. Food inflation rose to 5.95%, with onion, garlic, ginger and sugar among the major sources of pressure.

Wholesale prices are showing stronger pressure. WPI inflation rose to 9.92% in August from 9.78% in July, remaining above 9% for the fourth consecutive month. Fuel and power inflation accelerated to 22.93%, while manufactured-product inflation reached a 29-month high of 8.37%.

The difference between the two measures is unusually wide. Some of the pressure visible in wholesale prices has not yet fully reached consumers. But if higher input costs persist, part of that pressure could eventually pass through the supply chain.

There are already some signs of higher prices reaching consumers. CPI inflation in transport rose to 4.6%, while restaurants and accommodation services recorded inflation of 8.38%. These categories offer a more direct view of prices facing households, although they do not by themselves establish a broad-based acceleration in inflation.

The external backdrop is becoming less supportive, too. On Wednesday, the US Federal Reserve raised its policy rate by 25 basis points to 3.75-4%, its first increase since 2023. The Fed also raised its 2026 inflation forecast to 3.7% from 3.6%, signalling that inflation pressures remain a concern.

Higher US rates can keep global bond yields and the dollar elevated, while higher oil prices add to import costs. Meanwhile, the rupee fell past 96 to a dollar on Thursday, further elevating import price pressures.

The RBI has kept its repo rate at 5.25% for four consecutive reviews. Its next monetary policy meeting is scheduled for October 5-7.

None of this establishes that the RBI will raise rates in October. Economists remain divided. Some see the August CPI reading as insufficient to warrant an immediate policy change, while others expect inflation to remain elevated and see a stronger case for tightening if the trend persists.

The important change is in the policy environment. For much of the past year, the question was how much room the RBI had to ease. Rising domestic prices, a tightening Fed and pressure on the rupee make that calculation less straightforward.

The three pressures also work through different channels. Consumer inflation matters directly for the RBI’s inflation mandate. Wholesale inflation provides another signal of pressure further up the supply chain. Higher global rates and a weaker rupee affect financial conditions and imported costs.

Markets are still trying to assess how persistent these pressures will be. For the RBI, the October decision will have to weigh domestic inflation against global financial conditions, with neither moving in isolation.

 

Market wrap

India’s benchmark stock market indices fell for the sixth week in a row, as high crude oil prices and tightening monetary policy from the US to Japan weighed on sentiment.
The Nifty 50 slipped 0.22% while the BSE Sensex dropped 0.65% this week. The six-week stretch is the longest losing streak of the indices since 2020.
The small-caps and mid-caps fared better, falling 0.15% and 0.01%, respectively. As many as 10 of the 16 major sectors logged weekly losses.
Tata Group stocks were among the biggest losers after Tata Sons, the group’s holding company, reappointed N Chandrasekaran as its chairman despite objections from the Tata Trusts. TCS sank 4.4% and Titan cracked 4.2%.
Heavyweight Reliance Industries slipped almost 2.5% while ICICI Bank dropped 2.9%. State-run companies Coal India, NTPC and Bharat Electronics, non-bank lenders Bajaj Finserv and Shriram Finance, and auto stocks Maruti Suzuki, Bajaj Auto and Mahindra & Mahindra also ended lower.
Insurer HDFC Life was the top performer, rising almost 4%. SBI Life gained 2.8%. HCL Technologies, Infosys, Bharti Airtel, Adani Ports, HDFC Bank, and drugmakers Cipla and Dr Reddy’s Labs also ended in the green.

 

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That’s all for this week. Until next week, happy investing!

 

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