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What is Jio Financial Services and why is it spooking Paytm's stock?

What is Jio Financial Services and why is it spooking Paytm's stock?

With investors anticipating a huge disruption for the Noida-headquartered Paytm, the company's shares fell 11% on BSE to close trading at Rs 475 apiece

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Ever since Reliance Industries' announcement of listing its financial services undertaking Jio Financial Services Limited on the stock markets last month, the investor interest in the firm has increased manifold.

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).

"With secular growth drivers, the Indian financial services sector is poised to undergo a digital transformation. 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," said RIL in a stock exchange filing in October.

"Reliance has been developing and fostering a vibrant digital led-financial services platform through various digital applications. Reliance has developed best in-class applications having high customer engagement metrics and differentiated value propositions in their respective categories. The current footprint touches more than 20 million consumers. JFS plans to launch consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting. JFS will continue to evaluate organic growth, joint-venture partnerships as well as inorganic opportunities in insurance, asset management and digital broking segments," RIL added.

On Tuesday, Macquarie's report on Jio Financial Services had spooked Paytm stock, diving it to its record low, as the global financial services group sees Jio Financial Services becoming India’s fifth largest financial services firm. With investors anticipating a huge disruption for the Noida-headquartered Paytm, the company's shares fell 11 per cent on BSE to close trading at Rs 475 apiece.

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.

Jio Financial Services, Macquarie said, has articulated that it plans to launch a consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting. Macquarie said the focus seems to be on consumer and merchant lending, which is the mainstay of NBFCs like Bajaj Finance and fintech firms like Paytm.