Mumbai, Jan. 7: The Tatas have decided to merge their finance arm with Tata Motors.

The board of Tata Motors will meet on January 10 to consider a proposal to merge Tata Finance with itself.

The board will also consider the merger of two other subsidiaries ? Telco Dadajee Dhackjee and Suryodaya Capital & Finance (Bombay) with itself, Tata Motors informed the Bombay Stock Exchange today.

Tata Finance?s business is mostly linked to vehicles sold by Tata Motors, officials said. Most global auto majors like Ford and General Motors have mega-finance arms that fund vehicle purchases.

Tata Motors has so far signed financing agreements with Corporation Bank and Andhra Bank. The former will provide finance at easy instalments for Tata Motors? passenger cars. A similar tieup with State Bank of India was forged in the past.

The merger is being proposed since Tata Motors has ample funds that will help the financing business, officials said.

In preparation for the merger, Tata Finance has been shedding non-core businesses for some years now.

Tata Home Finance, a division of Tata Finance, was sold to Industrial Development Bank of India.

ICICI Bank has bought out the credit cards division of Tata Finance.

Tata Finance?s total clientele in the credit card business was only 70,000, while most of the leading commercial banks have more than 1.5 million customers.

The Tata group lent Tata Finance around Rs 300 crore, which will be converted into equity. Post conversion, the Tata group?s stake jumped to around 85-88 per cent from 65 per cent.

As a result, the capital adequacy ratio of the company increased to 16.5 per cent. Of the Rs 300 crore that was pumped in, Tata Sons invested Rs 160 crore, while Tata Industries chipped in with Rs 140 crore.

The group's holding touched close to 90 per cent.

In the second quarter of the current financial year 2004-05, Tata Finance registered an increase of 56 per cent in net profit at Rs 6.2 crore compared with Rs 4 crore achieved in the corresponding period last fiscal. Pre-tax profit increased 140 per cent to Rs 10 crore from Rs 4 crore in the same period previous fiscal.

However, income from operations of Tata Finance dipped 35 per cent to Rs 51 crore in the current fiscal from Rs 78.33 crore registered during the similar period of 2003-04.

Despite a decrease in income from operations, the increase in profit before tax is on account of reducing expenses, interest cost and depreciation costs.

In 2003-04, total disbursals of the asset finance division, comprising commercial vehicles, construction equipment, cars and two-wheelers financing, increased to Rs 1,415 crore.

In corporate finance, the company discontinued fresh financing activities for leasing as well as corporate lending.

The shareholding pattern of Tata Finance as on December 31, 2004 reveals that amongst the promoters, Tata Industries holds the maximum stake at 42.7 per cent, while Tata Sons and Tata Motors hold 30.184 and 9.256 per cent, respectively.

The other two promoters, Sheba Properties and Kalimati Investment Company holds 2.822 and 1.446 per cent, respectively.