Mukesh Ambani-led Reliance Industries’ (RIL) move to demerge its financial services business into Reliance Strategic Investments (RSIL) and rebranding it as Jio Financial Services (JFSL) is likely to shake up the financial sector significantly, said experts.
“Jio Financial will have a large distribution network and customer ecosystem derived from the other businesses of Reliance, that is, retail, telecom and finance website. It has access to huge data collected from these three areas. It could try and exploit these like Alibaba, Google and Facebook,” said Deepak Jasani, head of retail research, HDFC Securities.
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“Jio could disrupt businesses of NBFCs, fintechs the most and banks the least. It has grand ambitions and has on board the best of finance professionals. Among NBFCs, Bajaj Finance and Poonawala Fincorp could get impacted by the entry of Jio, though it could take some time to replicate the competencies of these two. Paytm could also be impacted to an extent by Jio,” Jasani said.
RIL has convened a meeting of creditors and shareholders on May 2 to seek their approvals for the demerger of RSIL, which is a non-deposit taking, systematically important NBFC. JFSL has appointed banking sector veteran KV Kamath to be the non-executive chairman of the company, while McLaren Strategic Venture’s top executive Hitesh Sethi will reportedly be the new CEO.
“RIL’s foray into financial services with Jio-FS will open opportunity to play in India’s consumer, commercial loans and NLF side (non-lending financial). Demerger & listing can take six months and build-up of franchise may be staggered as tech, analytics, recovery platforms may need to be built inhouse. Chairman & CEO are ex-ICICI Bank leaders. Aggressive push can impact players in consumer loans & payments,” brokerage house Jefferies said in a report on April 1.
As per Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, JFSL’s vision seems to become a complete financial services conglomerate. “They seem to have already started identifying people from various companies for various positions. Getting a bank licence is very difficult as they are a corporation, but they can be a large NBFC, enter insurance business or mutual funds,” he said.
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RIL’s financial services business presently comprises its investment arm Reliance Industrial Investments and Holdings (RIIHL), Reliance Retail Finance, Reliance Payment Solutions, Reliance Retail Insurance Broking, Reliance Strategic Investments, Jio Information Aggregator Services and Jio Payments Bank. RIL’s financial services business, along with that of Reliance Strategic Investments, posted a combined revenue of Rs 1,535.6 crore in FY22, with an asset base of Rs 27,964 crore.
“Kamath has been the main person behind ICICI Group’s growth and development, partly also because many sectors opened up during his tenure, like asset management and insurance sectors. Then venture funds and housing finance were present and now if you can look at various businesses, there are several subsidiaries of ICICI Bank. The only limitation is that they may have to be NBFC and not a bank,” Parekh said.
Scope of business
As per Sumit Pokharna, research analyst and vice president at Kotak Securities, JFSL will have a wide presence in many areas of finance and their scope of activities will be fairly wide. “It (JFSL) will carry on the business of Investment/finance. The Company will provide financial services, advice and facilities such as those provided by bankers, stockbrokers, stockjobbers, foreign exchange dealers, commodity brokers, investment and pension fund managers investment/merchant bankers, insurance brokers, hire-purchase, leasing, regardless of whether the property purchased and leased is new and/or used and from India or from any part of the world,” Pokharna said.
He added that the company has submitted requisite applications with Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (Irdai) for approvals in connection with the de-merger scheme. “We will wait for the final judgment from RBI. However, we remain optimistic,” he said.
As per the Jefferies report, in the backdrop of Reliance Group’s large presence in retail and telecom segments that drive customer base of 20 million users, as well as vendor partnerships, JFSL’s first port of call could be consumer lending, especially electronics, and merchant financing. JFSL’s key advantage will be low cost of funds due to Group’s higher credit rating, higher access to capital markets and planned ownership of 6.1% stake in Reliance Industries.
“The group also aspires to foray into non-lending financial businesses like life, general insurance and AMC business, where it can even take the inorganic route and benefit from recent regulatory change that allows banks to have up to nine insurance partners. The payments business may be built to acquire customers, as standalone economics are quite weak,” it said.
As Parekh says, one of the good characteristics of financial services is that it is totally driven by financial capacity and promoter’s ability to put in capital during volatile times. In JFSL’s case, it will be backed by India’s most valued company, Reliance Industries.
“With the exception of services like security trading, everything else is capital based, be it insurance, mutual funds… the more the capital you bring in, the larger balance sheet you will have and that is the expectation from Jio Financial Services,” Parekh said.
