RIL's fintech ambitions could create India's 5th largest financial services firm: Macquarie

(Representative image: Reuters)

Reliance Industries Ltd's plans to demerge its financial services business and list the entity could create the fifth-largest financial services firm in India in terms of net worth, according to a report by Macquarie Capital Securities.

RIL announced on October 21 that it plans to demerge its financial services undertaking into Reliance Strategic Investments Ltd (RSIL) and rename it Jio Financial Services Ltd (JFSL), which will be listed on the stock exchanges.

RSIL is a wholly owned subsidiary of RIL and an RBI-registered non-deposit-taking systemically important non-banking financial company (NBFC).

"The investment of RIL in Reliance Industrial Investments and Holdings Ltd (RIIHL), which is a part of the financial services undertaking of RIL, will stand transferred to JFS. RIIHL is the ultimate beneficiary of 6.1 percent RIL shares through its interest in Petroleum Trust and Reliance Services and Holdings Ltd," the Macquarie report said.

"Assuming the 6.1 percent stake in RIL is realised over time, with a Rs 1 trillion net worth, JFS could be the fifth-largest financial services firm in India," it added.

Leveraging RIL network

Reliance group's network of more than 15,000 stores across formats (supermarkets, digital stores, etc) and a customer base of over 400 million in telecom and 200 million in retail can also be leveraged to grow the financial services business, according to Macquarie.

Reliance Industries can also leverage its NBFC licence to kick-start consumer/merchant lending in a big way, Macquarie said. It believes that this could be a potential threat to fintechs and NBFCs, with Bajaj Finance and Paytm being the most at risk.

For banks, however, Macquarie sees a moderate impact of Jio Financial Services considering their ability to do a lot more business at a lower cost of funds.

"While the scope for RIL to disrupt the financial services industry may be high, the path to profit has to be significantly de-risked. Further, we would prefer a more focussed capital allocation strategy around energy transition and digital infrastructure themes," the note said.

KV Kamath at the helm

On November 4, Reliance Industries said it has appointed banking veteran and National Bank for Financing Infrastructure and Development chairman KV Kamath as an independent director on its board for five years. Kamath was also appointed to the board of RSIL.

Kamath started his career in 1971 with ICICI. In 1988, he moved to Asian Development Bank and spent several years in South East Asia before returning to the ICICI as its managing director and CEO in 1996. After the company's merger with ICICI Bank, he was the MD and CEO of ICICI Bank.

Macquarie believes that with Kamath at the helm, JFS is likely to be aggressive.

"Kamath has a legacy of spotting newer markets and opportunities based on his past track record and can scale up JFS’s business verticals," the note said.

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