Analysts believe that the Reliance company has the potential to significantly impact the payments industry and pose a challenge to existing fintech models.
According to a research published by Macquarie Research on Tuesday, Jio Financial Services (JFS), which is now held by Reliance Industries and is scheduled for demerger and listing, has the potential to become India's fifth biggest financial services organisation.
The HDFC Bank, the State Bank of India, the ICICI Bank, and the Axis Bank are the four most successful corporations in this industry. JFS has a substantial amount of room for growth on its financial sheet. Suresh Ganapathy, Aditya Suresh, and Param Subramanian said in the report that "assuming 6.1 per cent stake in Reliance Industries Ltd realised over time, with a net worth of Rs 1 trillion JFS could be the 5th largest financial services firm in the country." This was based on the assumption that the stake would be realised over time.
According to the analysis, the Reliance company has the potential to cause a disruption in the payments industry and become a challenge to existing forms of fintech. In its earnings report for the second quarter, which was released a month ago, Reliance said that it intends to demerge its financial services division in order to form a new organisation that would be listed on the markets.
JFS will buy liquid assets to create appropriate regulatory capital for lending. For at least the next three years, it will serve as an incubator for sectors within the financial services industry such as insurance, payments, digital broking, and asset management. According to Reliance Industries, the regulatory permits required for important operations are now in place.
In order to supplement the conventional underwriting that is based on credit bureau information, JFS and its subsidiaries intend to start a consumer and merchant lending company that will be based on proprietary data analytics.
According to the study published by Macquarie Research, there is a possibility that JFS will not be able to get a banking licence since the regulator is reluctant to let corporate organisations. Since Reliance possesses an existing licence to operate as a Non-Banking Financial Company (NBFC), JFS is able to capitalise on this for consumer and merchant lending.
The corporation is now able to enter the manufacturing industry in insurance verticals as a result of the insurance regulator's willingness to issue licences. JFS may also investigate the possibility of going the inorganic path in order to achieve size and strength.
"With RIL (Reliance group) as the principal sponsoring organisation, JFS will also likely be AAA rated, which means that it will be able to borrow at favourable rates similar to the rates at which LIC housing finance borrows. According to the analysis, JFS is able to provide attractive interest rates not only in the market for merchant lending and digital unsecured lending, but they also have the potential to be moderately competitive in the market for secured lending in the future.
According to the report, "With a network of more than 15,000 stores across several formats (supermarket, digital stores, etc.), and a vast customer base of 400 million or more in telecom and 200 million or more in retail (there could be overlaps here), JFS can leverage on network effects and in concept be a formidable threat for incumbents, particularly NBFCs and Fintechs."
K. V. Kamath, a seasoned banker, was selected by Reliance earlier this month to serve as an independent director and non-executive chairman of Reliance Strategic Investments Ltd (RISL), the company that will soon be rebranded as Jio Financial Services.
After the completion of the plan and the listing of the firm, Kamath will continue to serve as an independent director and as the non-executive chairman of JFS.
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