Jio Financial Services could become fifth largest fin service entity: Study

Reliance firm can disrupt payments business and become a threat to other fintech models, say analysts

Jio Financial Services (JFS), owned by Reliance Industries and set for demerger and listing, could become India’s fifth largest financial services firm, said a report by Macquarie Research on Tuesday.

HDFC Bank, State Bank of India, ICICI Bank, and Axis Bank are the four top companies in the business. JFS has significant scope to expand its balance sheet. “Assuming 6.1 per cent stake in Reliance Industries Ltd realised over time, with a Rs 1 trillion net worth JFS could be the 5th largest financial services firm in the country,” said Suresh Ganapathy, Aditya Suresh, and Param Subramanian in the report.

The Reliance firm can disrupt the payments business and become a threat to other fintech models, said the report. Reliance, in its Q2 earnings last month, said it will demerge its financial services business to create a new entity that will be listed on the exchanges.

JFS will acquire liquid assets to provide adequate regulatory capital for lending. It will incubate financial services verticals such as insurance, payments, digital broking, and asset management for at least the next three years. The regulatory licenses for key businesses are in place, said Reliance Industries.

JFS and its subsidiaries plan to launch a consumer- and merchant-lending business based on proprietary data analytics to complement the traditional credit bureau-based underwriting.

The Macquarie Research report said that JFS will perhaps not be able to secure a banking licence as the regulator is averse to allowing corporate groups. Reliance already has a Non Banking Financial Company (NBFC) licence, so JFS can leverage that for consumer and merchant lending.

With the insurance regulator being open to give licences, the company can get into manufacturing in insurance verticals. JFS could also explore the inorganic route to get scale and strength.

“With RIL (Reliance) group as the main sponsoring entity, JFS will also likely be AAA rated entity which can borrow at attractive rates like the rates at which LIC housing finance borrows. JFS can not only offer attractive rates in the merchant lending and digital unsecured lending market, but they could also be reasonably competitive in the secured lending market eventually in our view”, the report said.

“With a network of more than 15,000 stores across several formats (supermarket, digital stores etc) and a vast customer base of 400mn+ in telecom and 200mn+ in retail (there could be overlaps here), JFS can leverage on network effects and in concept be a formidable threat for incumbents especially NBFCs and Fintechs in our view”, the report said.

Earlier this month, Reliance appointed veteran banker K V Kamath as an independent director and non-executive chairman of Reliance Strategic Investments Ltd (RISL), which will be renamed as Jio Financial Services.

Kamath will continue as independent director and non-executive chairman of JFS upon consummation of the scheme and the company’s listing.