Macquarie said in a note that Jio Financial Services could be the fifth largest financial services company in terms of net worth post demerger with Reliance Industries. Jio Financial Services has a large distribution network and customer ecosystem and the risk of disruption may be minimal for banks, while it will be high for NBFCs and fintechs like Bajaj Finance and Paytm.
Macquarie said Jio Financial has clarified that it plans to launch consumer and merchant lending businesses based on proprietary data analytics to supplement and complement traditional credit bureau-based underwriting.
Macquarie said that although it is too early to understand the exact customer segments and target markets that Jio Financial plans to cater to, it seems clear that it will focus on consumer and merchant lending, which is the main focus of NBFCs such as Bajaj Finance and fintechs. is the basis. Like Paytm.
Jio Financial will have a significant advantage over other NBFCs due to its large parentage, AAA credit rating, strong and well-capitalised balance sheet, very large distribution footprint and strong ability to attract top talent.
Macquarie said lending is ultimately a human resource intensive business, and Jio Financial Services’ ability to execute will only become apparent over time.
“The NBFC business model has been treacherously difficult for most conglomerates to enter this sector, with Bajaj Finance and Chola Finance being notable exceptions. The idea, in our view, could create a significant growth and market-share exposure to players such as Bajaj Finance and Paytm with whom it could compete,” it said.
Macquarie said that given that banks have a significant cost of funds advantage and the ability to do a lot of business that NBFCs cannot, Jio Financial Services’ impact on the banking sector could be a bit more moderate. In the long term, the foreign brokerage remained positive on HDFC Bank and ICICI Bank and said they were its top picks in the sector.
It added that among NBFCs and fintechs, Bajaj Finance and Paytm may be most at risk.
“While the scope for RIL to disrupt the financial services industry may be high, the path to profitability will have to be significantly de-risked. In addition, we would prefer a more focused capital allocation strategy around the energy transition and digital infrastructure themes For RIL, our price target remains unchanged at Rs 2,000 and we maintain Underperform with our EPS estimates 30 per cent below consensus and already sub-par 6 per cent RoE outlook.
