Reliance Industries (RIL) on Friday announced the demerger of its financial services undertaking into a separate entity — Reliance Strategic Investments (RSIL) — which will be renamed Jio Financial Services Limited (JFSL) and listed on the stock exchanges.

Separately, the company’s board also approved a scheme of arrangement under which the EPC and infrastructure undertaking of Reliance Projects and Property Management Services (RPPMSL), a wholly-owned subsidiary, will be demerged into RIL. This demerger, together with the existing EPC team in RIL, will create a focused EPC undertaking in RIL to cater to the needs of the group.

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RSIL is currently a wholly-owned arm of RIL and is a RBI-registered non-deposit taking systemically important (ND-SI) non-banking financial company. The company did not share a timeline for the process to be completed. The turnover of the financial services business as of March 31, 2022, was Rs 1,387 crore, which is 0.3% of the total turnover of RIL.

“Pursuant to the scheme, shareholders of RIL will receive one equity share of JFSL of face value `10 for one fully paid-up equity share of Rs 10 held in RIL. The board has approved the entitlement ratio based on the recommendations of the independent valuer and merchant bankers,” the company said in a statement after announcing its September 30, 2022, ended quarter results.

JFSL plans to launch the consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting, RIL said. “JFSL will continue to evaluate organic growth, joint-venture partnerships as well as inorganic opportunities in insurance, asset management and digital broking segments,” it added.

RIL said that JFSL will build a business of scale across consumer segments to create value for every stakeholder. “This, coupled with a strong capital base and unparalleled digital infrastructure capabilities, would enable JFSL to offer a differentiated value proposition for its customers,” it said.

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Commenting on the demerger of the financial services undertaking, Mukesh Ambani, chairman and managing director, Reliance Industries (RIL), said, “JFSL will be a truly transformational, customer-centric and digital-first financial services enterprise offering simple, affordable, innovative and intuitive financial services products to all Indians. JFS will be a technology-led business, delivering financial products digitally by leveraging the nation-wide omni-channel presence of Reliance’s consumer businesses. JFS is uniquely positioned to capture multiple growth opportunities in financial services bringing millions of Indians into formal financial institutions.”

According to RIL, the sector presents a large, under-penetrated and growing addressable market, especially for retail and small-business focused product categories. “JFSL and its subsidiaries will leverage the technology capability of Reliance and focus on digital delivery of financial products to democratise financial services access for 1.4 billion Indians,” the company said. The company’s current footprint touches more than 20 million consumers.

RIL said, that with the ambition to create one of India’s leading financial services enterprises, JFSL will also onboard an experienced management team and adopt best-in-class governance and risk management practices across verticals.

As part of the process, the investment of RIL in Reliance Industrial Investments and Holdings (RIIHL), which is a part of the financial services undertaking of RIL, will stand transferred to JFSL. RIIHL is the ultimate beneficiary of 6.1% RIL shares through its interest in Petroleum Trust and Reliance Services and Holdings.

Additionally, through the scheme, JFSL will acquire liquid assets to provide adequate regulatory capital for lending to consumers, merchants, etc, and incubate other financial services verticals such as insurance, payments, digital broking, asset management for at least the next three years of business operations.

RIL said that the regulatory licences for the key businesses are in place.

The transaction is subject to customary statutory and regulatory approvals, including those of respective shareholders and creditors, the NCLT (National Company Law Tribunal), the stock exchanges, Sebi (Securities and Exchange Board of India), RBI (Reserve Bank of India), and all other regulators as may be required. Morgan Stanley India Company and Citigroup Global Markets India provided a fairness opinion on the entitlement ratio recommended by KPMG Valuation Services LLP (Registered Valuer). Citi, Morgan Stanley and Goldman Sachs are acting as financial advisers and Khaitan & Co is acting as legal adviser in relation to the proposed transaction.