Jio Financial Services could be the fifth-largest financial services company in terms of networth post demerger with Reliance Industries, Macquarie said while noting that Reliance group has a network of more than 15,000 stores across several formats and a vast customer base (40 crore in telecom and 20 crore in retail) that Jio Financial Services can leverage and, in concept, be a formidable threat for incumbents.
The risk of disruption could be least for banks while it would be high for NBFCs and fintechs such as Bajaj Finance and Paytm, the foreign brokerage said in a note on November 21.
Jio Financial Services, Macquarie said, has articulated that it plans to launch consumer and merchant lending business based on proprietary data analytics to complement and supplement the traditional credit bureau-based underwriting.
Macquarie said while it is too early to understand the exact customer segments and target markets that Jio Financial Services plans to cater to, it seems clear that it will be focused on consumer and merchant lending, which is the mainstay of NBFCs like Bajaj Finance and fintechs like Paytm.
On October 25, the board of Reliance Industries approved a scheme of arrangement among RIL, Reliance Strategic Investments (RSIL) and their respective shareholders and creditors in terms of which, RIL will demerge its financial services undertaking into RSIL (to be renamed Jio Financial Services).
Jio Financial Services (JFS) would eventually be listed on stock exchanges.
Jio Financial will have a significant advantage over other NBFCs due to its deep-pocketed parentage, AAA credit rating, strong and well-capitalised balance sheet, very large distribution footprint and strong ability to attract top-notch talent, Macquarie said.
That said, lending is ultimately a human resource intensive business, and Jio Financial Services' capabilities on execution will only become clear with time, Macquarie said.
"The NBFC business model has been a treacherously difficult one for most conglomerates that have entered the space, with Bajaj Finance and Chola Finance being the standout exceptions. However, RIL has demonstrated its hunger for attaining scale in the past in other businesses, and in our view, can pose a significant growth and market-share risk for players like Bajaj Finance and Paytm with whom it could be competing head-on," it said.
Macquarie said considering banks have significant cost of funds advantage and ability to do a lot more business that NBFCs cannot do, Jio Financial Services' impact on the banking sector could be a bit more moderate. The foreign brokeage remained positive on HDFC Bank and ICICI Bank in the longer run and said they were its top picks in the sector.
Among NBFCs and fintech, Bajaj Finance and Paytm could be the most at risk, it said.
"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. For RIL, our price target is unchanged at Rs 2,000 and we maintain Underperform with our EPS estimates 30 per cent below consensus and an already sub-par 6 per cent ROE outlook," it said.
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