Jio Financial, a potent disruptor but can get the execution right?

Jio Financial Services’s entry into financial services can cause a potential disruption in the market but the new entrant will have to get several things right to become a formidable player.
Jio Financial Services Ltd Independent Director and non-Executive Chairman K.V. Kamath and BSE Chairman Subhash S Mundra during the listing ceremony of Jio Financial Services. (PTI)
Jio Financial Services Ltd Independent Director and non-Executive Chairman K.V. Kamath and BSE Chairman Subhash S Mundra during the listing ceremony of Jio Financial Services. (PTI)

Jio Financial Services (Jio Financial )--- a core investment company spun off from Reliance Industries Ltd (RIL) earlier this month--- is poised to become a formidable player in the financial services sector, said a report from Axis Capital.  

With a net worth of Rs 1.1 lakh crore and a market capitalization of approximately Rs 1.35 lakh crore, Jio Financial ranks among the top NBFCs in terms of net worth, surpassing even giants like Kotak Mahindra Bank and Bajaj Finance.

Armed with a robust capital base, an experienced team, a strong brand, a massive customer base, and cutting-edge technological capabilities, Jio Financial is gearing up to provide a comprehensive range of financial services. As a holding company, Jio Financial will operate such financial services through its consumer-facing subsidiaries. 

With the entry of this deep-pocketed player into the market for insurance and payments, competition has increased for new-age Indian players including Zerodha, Groww, Paytm, PhonePe, and PB Fintech.

“Leveraging Reliance's nationwide omni-channel presence, Jio Financial is poised to intensify competition in the retail lending and fintech sectors. With no legacy issues or baggage, it starts fresh with focus on new-age products and technologies. The parent company's AAA rating ensures Jio Financial can access low-cost funds, a critical asset for its lending businesses,” the report noted. 

The new entrant plans to “democratize access” to financial services by building a digital-first institution across retail/merchant lending, MSME financing, insurance (broking + manufacturing), e-broking, and asset management, Axis Capital said. 

Negligible presence

Reliance Industries currently has a negligible presence in the financial services market.

Hiving off Jio Financial as a separate company, backed by adequate capital and management bandwidth, indicates the group’s focus on and aspiration, Axis Capital said. 

It has currently consolidated all its financial services businesses under the Jio Financial umbrella and aspires to add multiple, new verticals in the coming quarters and years.

“We believe Jio Financial will become a very relevant player in the NBFC space, disrupting some sub-segments (like digital lending), and may aspire for market leadership in the segments where it is present,” it noted.

Scale and ambition  

Jio Financial starts with a huge net worth and war chest. Jio Financial would be amongst the Top 5 NBFCs in terms of its net worth and much bigger than the likes of Kotak Mahindra Bank and Bajaj Finance, assuming treasury shares as part of its net worth. 

Even excluding that, Jio Financial ’s core net worth stands at nearly Rs 316 billion, which gives it ample fodder for growth.  Ample management bandwidth backed by very experienced people.  Ability to attract the best talent from the market, backed by the opportunity size and brand.  Access to low-cost capital due to the brand and superior credit rating of the parent. 

Not just about the money

Even as Axis Capital sees the new entrant as a potential disruptor, it pointed out that it would need to get several things right in order to succeed.

“Unlike other businesses, the lending business requires a strong focus on distribution and collections to keep costs and asset quality under check…Jio Financial ’s immediate goal is to build a solid collections team along with physical and digital infrastructure, which will take significant time,” it pointed out, adding that companies such as Bajaj Finance, Paytm, HDFC Bank, and Kotak Bank took years to build their infrastructure. 

However, in its favor, Jio Financial has already put in place a strong management team with decades of experience in the financial services industry. But, said Axis Cap, building up on-ground capabilities which will take time.

“Moreover, various new lines of businesses (like insurance and AMC) will require regulatory approvals and licenses, which may take a reasonable amount of time before kick-starting. The next two years are likely to be the foundation years for Jio Financial on which it can build its aspiring scale and position in the financial services space,” it noted.

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