Tata Capital IPO: How India’s Third-Largest NBFC Makes Money?

When you hear the word Tata, your mind instantly recalls Tata Steel, Tata Motors, or even the iconic Tata Tea. But hidden within the vast Tata empire is a financial powerhouse that has quietly become one of India’s fastest-growing “money machines” — Tata Capital.

With a loan book of INR 2.33 lakh crore, serving 7.3 million customers through 1,500+ branches, Tata Capital has transformed from a mid-sized lender into India’s third-largest diversified NBFC.

The big question is: How Tata Capital makes money?
Is it just about giving loans, or is there more behind the curtain? Let’s peel back the layers.

The Money-Making Blueprint

At its core, Tata Capital is not a single-engine lender. Instead, it runs on a multi-pronged business model designed to ensure growth, stability, and diversification.

• Lending Business – The Core Engine
• Accounts for over 90% of revenues. Spread across retail, SME/MSME, corporate loans, and now vehicle finance (after the TMFL merger).
• Non-Lending Business – The Silent Support
  Contributes a smaller share today but is fast-growing. Includes insurance distribution, wealth management, advisory services, and private equity funds.

Think of the company as a financial supermarket: loans bring the bulk of revenue, while fee-based services add resilience and higher margins.

Lending – The Engine Room of Tata Capital

Then lending is the engine that keeps the company running. And this engine has multiple cylinders firing together:

• Retail Lending (~62% of Loan Book)
  • Products: Personal loans, housing finance, consumer durable loans, education loans, and credit cards.
  • Why it matters: These loans are shorter in tenure, higher in yield, and ride on India’s booming middle-class consumption story.
  • Over 97% of retail loans are now sourced digitally, reducing costs and speeding up growth.
• SME & MSME Lending (~26%)
  • Products: Working capital loans, equipment financing, supply chain finance.
  • Why it matters: India’s SME ecosystem is growing rapidly, and Tata Capital positions itself as the preferred partner for small businesses.
  • Key feature: Higher risk-adjusted yields compared to corporate lending.
• Corporate Lending (~11%)
  • Products: Structured finance, project loans, term loans.
  • Why it matters: While yields are lower, the ticket size is massive, which ensures scale. Plus, it helps Tata Capital build relationships with large corporates for future cross-selling.
• Vehicle Finance (The TMFL Merger Game-Changer)
  • With the merger of Tata Motors Finance in May 2025, Tata Capital gained a dominant presence in vehicle financing.
  • TMFL contributes: 92.5% of commercial vehicle loans, 16.8% of car loans, and 12.8% of supply chain finance.

Lending is Tata Capital’s lifeblood, contributing more than nine-tenths of its income. But unlike many peers, Tata Capital has smartly diversified across segments — ensuring it doesn’t rely too heavily on a single stream.

Beyond Lending

While loans bring in the bulk of Tata Capital’s income, the company has carefully built non-lending businesses that provide stable, fee-based revenues. These businesses don’t require heavy capital like loans do, yet they deliver steady profits.

Here are the NBFC’s “silent money-makers”:

• Insurance Distribution
  The NBFC doesn’t just sell loans — it also sells insurance policies (life, health, motor, travel). Every policy sold earns the company a commission, without carrying any underwriting risk.
  Think of it like this: the customer buys a loan, and alongside, Tata Capital cross-sells an insurance plan — a win-win for both.
• Wealth & Investment Management
  From high-net-worth individuals to retail investors, Tata Capital provides mutual fund distribution, portfolio management, and advisory services. Each transaction brings management fees and advisory charges.
  As India’s middle class builds wealth, this arm is steadily growing.
• Private Equity & Advisory
  The company also runs private equity funds and corporate advisory services, earning management fees, carry, and transaction fees.
  This part may be small in scale today, but it cements Tata Capital’s reputation as a full-spectrum financial services player.

These streams together contributed INR 1,943.0 crore in FY25 fee income, a strong 22% year-on-year growth. Importantly, these businesses make Tata Capital less dependent on interest income — a strategic move in an industry where bad loans can eat away profits.

Other Income – The Cherry on the Cake

Besides lending and fee-based services, Tata Capital also earns from “other income”, which acts as a booster shot for profits.

• Rental Income – Properties leased out bring in steady cash flow.
• Dividend Income – Returns from investments in group companies and mutual funds.
• Investment Gains – Profits from selling equity/debt investments or revaluing them at market prices.

For instance, in FY25 alone, Tata Capital reported:

• Dividend income of INR 13.0 crore,
• Rental income of INR 2,685 crore,
• Net gain on financial instruments of INR 116.2 crore.

While not the primary revenue driver, these streams smoothen the earnings curve and act as buffers when lending profits come under pressure.

Funding Model – The Secret Sauce

Loans can only be given if a company can borrow cheaply. And this is where Tata Capital’s biggest advantage lies.

• Ultra-Cheap Borrowings
  Tata Capital’s average borrowing cost in FY25 was just ~7.7%, among the lowest in the NBFC industry.
  The Tata brand’s AAA credit rating ensures lenders — banks, mutual funds, pension funds — are willing to lend at rock-bottom rates.
• Borrowing Mix
  Its INR 1.79 lakh crore borrowings come from:
  • Debt securities (INR 74,300 cr),
  • Bank loans (INR 966 cr),
  • Subordinated debt (INR 88 cr).
• The Spread Game
  Tata Capital lends at an average yield of 12.2%, while borrowing at ~7.7%.
  That spread of ~4.5% is the real money-maker — the wider the spread, the fatter the profits.
• Digital Efficiency
  With 97% retail loans sourced digitally, Tata Capital keeps operating costs low. Its cost-to-income ratio was just 40.6% in FY25 — far more efficient than many peers.

This funding model — cheap capital, efficient digital operations, and wide spreads — is the secret sauce behind Tata Capital’s profitability.

Risk Management – Guardrails on the Highway

Lending is a high-speed highway: it fuels growth, but it also demands guardrails. For Tata Capital, asset quality is one such area that requires constant attention.

• Inherited Challenges, Strengthened Controls
  After merging with TMFL in FY25, Tata Capital absorbed a vehicle finance book that carried higher stress (Gross Stage 3 Loans at 7.1%). Yet, this merger also expanded Tata Capital’s presence in commercial and passenger vehicle lending, a segment with strong long-term potential.
• Why the Risks Are Contained
  • The core loan book (excluding TMFL) remains resilient with Gross Stage 3 Loans at just 1.5% and a healthy Provision Coverage Ratio of 65.8%.
  • Tata Capital has invested heavily in digital underwriting (97% of retail loans sourced digitally) and data-driven monitoring, which strengthens credit quality over time.
  • By diversifying across retail, SME, and corporate finance, the company ensures that no single portfolio drags the overall performance.

Yes, short-term profitability in TMFL was impacted (FY25 net loss of INR 181.3 crore). But this is best seen as integration pains — in the medium term, the merger expands Tata Capital’s reach, customer base, and cross-sell opportunities.

The Big Picture

Step back, and Tata Capital’s financial model looks like a finely tuned machine:

• Loans remain the engine, generating over INR 21,500 crore in interest income in FY25.
• Fees and insurance commissions (INR 1,940 crore) provide steady, non-cyclical revenue.
• Rental, dividend, and investment gains add supplementary cushions.
• Funding advantage, thanks to the Tata brand, keeps borrowing costs competitive.

Even more importantly, Tata Capital runs this machine efficiently:

• NIM: 5.1% – strong among NBFC peers.
• ROE: 14.2% – attractive for shareholders.
• Cost-to-Income: 40.6% – demonstrating scale benefits.
• Loan Book Growth: 22.9% YoY in FY25 – reflecting demand and execution strength.

These numbers paint the picture of a company that isn’t just growing, but growing profitably and responsibly.

The Investor’s Lens

So, how does Tata Capital make money?

• By borrowing at competitive rates,
• Lending across diversified segments,
• Generating fee-based income streams,
• And safeguarding profitability with disciplined risk controls.

The real story here is not just about making money, but about building a sustainable financial ecosystem. Tata Capital has shown that even as it scales rapidly, it remains disciplined, customer-centric, and innovative.

💡 The Takeaway: Tata Capital is not only a lending arm of the Tata Group. It is emerging as a full-fledged financial powerhouse, with the potential to stand shoulder-to-shoulder with the biggest NBFCs and banks in India. With its brand trust, operational depth, and growth momentum, it’s not just about “how Tata Capital makes money” — it’s about how Tata Capital makes money work better for millions of Indians.

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