Jio Financial Services is here to play the long game, and it will likely leverage parent Reliance Industries’ strength in a growing industry, instead of resorting to aggressive pricing of loans to grow, believe analysts.
Reliance Industries’ Jio Financial Services, the newest NBFC in town, is expected to focus aggressively on merchant and customer lending thanks to its parent's wide reach in kirana stores. As of June end, Reliance Industries had a total store count of 18,446 with registered customers at 26.7 crore.
"With the kind of financial heft that Jio Financial brings to the table, they can't be taken lightly… As long as the promoter group believes it's for the long term, they will be very rational in their decisions," ASV Krishnan, Senior Vice President of HDFC Securities, told Moneycontrol.
Jio Financial will likely maintain the industry discipline. Moreover, the RBI is likely to be watching like a hawk, he added. It will likely use proprietary data analytics to complement and supplement traditional credit bureau-based underwriting.
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Jio Financial Services’ impact on other NBFCs, new players like Paytm, Phonepe
Analysts are not too worried about JFS eating up the lunch of other existing NBFCs as the market is only growing larger, though fintechs like Paytm and Phonepe -- which are just starting out in the lending space -- could see some impact.
According to Standard Chartered Bank, India's per capita income is likely to grow around 70 percent by 2030 and is expected to reach $4,000 from current levels of $2,450. This means consumption will boom and consequently credit growth will also be strong.
Jignesh Shial, director – Research at InCred Capital said, "We are not alarmed towards threat for existing players as other factors such as cost of funds, appropriate risk assessment as well as prudent recovery mechanism also play an important role for the success of a lender."
Also Read: Jio Financial becomes second-largest NBFC with Rs 1.66-lakh-cr valuation
According to data compiled by international broking firm Jefferies, JFS had a net worth of Rs 28,000 crore (FY22). This includes a 6.1 percent stake in Reliance Industries, which is a result of the transfer of treasury shares from the parent. Excluding the cost of that stake, JFS' core net worth may be about Rs 14,000 crore.
Jio Financial’s capital raising requirements
"Therefore, JFS may over next few years look to raise capital to fund growth or support cash-backed M&A as need to write-off goodwill will bring down capital," according to analysts at Jefferies.
Nonetheless, raising capital to expand its offerings should not be an issue for JFS, given the strong track record of its promoters. Furthermore, JFS has already roped in key personnel from the banking industry to drive the operations.
While veteran banker KV Kamath will be the non-executive chairman at JFS, Hitesh Sethia, a former ICICI executive, will take on the role of the new CEO and MD.
Also, Charanjit Singh Attra, who recently resigned as Chief Financial Officer of the State Bank of India, has taken up the position of Chief Operating Officer at Jio Financial Services. The 13th CAG of India Rajiv Mehrishi, former MD & CEO of Punjab National Bank Sunil Mehta, and ex-partner at PwC Bimal Manu Tanna (Partner at PWC) have also joined JFS' board.
Also Read: Jio Financial Services lists on NSE at Rs 262 a share
"They are already redeploying people from within the larger group into JFS. So, talent will not be a problem for them. Moreover, proven ownership is always the first tick box to take exposure in an NBFC," said Krishnan.
Jio Financial Services’ growth in non-lending business
JFS also aims to go big into non-lending financial businesses like life/ general insurance and asset management, where it can even take an inorganic route to grow. "JFS can benefit from recent regulatory change that allows banks to have up to 9 insurance partners," per Jefferies.
Meanwhile, Shial sees JFS foraying into digital broking, as well.
Last month, JFS announced its tie-up with Blackrock, the world’s largest asset manager, to float a mutual fund company. Together, the partnership will introduce a new player to the India market targeting an initial investment of $300 million.
The company has also reportedly taken on lease 13,872 square feet of space in Mumbai's Bandra Kurla Complex at a monthly rent of Rs 55.5 lakh. This is where most financial institutions are housed, as well as the National Stock Exchange.
With feet on the ground and eyes on stars, Jio Financial has charted an exciting growth path ahead and investors will be keenly watching each of its moves.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
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