Will Reliance entry in NBFC could shake other competitors ?

Reliance Industries, under the leadership of Mukesh Ambani, has scheduled a meeting with its creditors and shareholders on May 2, in order to obtain their consent for the proposed demerger of Reliance Strategic Investments (RSIL). RSIL is a systematically important non-deposit taking NBFC (Non-Banking Financial Company). After the demerger, RSIL will be rebranded as Jio Financial Services (JFSL). JFSL has already chosen experienced banking sector professional KV Kamath as its non-executive chairman, while Hitesh Sethi, a top executive from McLaren Strategic Ventures, is expected to be appointed as the new CEO. As per Deepak Jasani, head of retail research at HDFC Securities, Jio Financial Services will have an extensive distribution network and customer ecosystem through its association with Reliance's retail, telecom, and finance website businesses, providing it access to vast amounts of data which could be utilized in a manner similar to companies such as Alibaba, Google, and Facebook.

According to Parekh, KV Kamath played a key role in the growth and development of ICICI Group. During his tenure, various sectors like asset management and insurance opened up, and the group ventured into areas like venture funds and housing finance. Today, ICICI Bank has several subsidiaries. The only constraint for these subsidiaries is that they may have to operate as non-banking financial companies (NBFCs) rather than as banks.

According to Sumit Pokharna, who is a research analyst and Vice President at Kotak Securities, JFSL's scope of activities will be quite extensive, covering various areas of finance. "JFSL will operate in the investment/finance business, providing financial services, advice, and facilities similar to those provided by bankers, stockbrokers, foreign exchange dealers, commodity brokers, pension fund managers, investment/merchant bankers, insurance brokers, hire-purchase, and leasing companies, regardless of whether the property being leased is new or used and whether it is sourced from India or any other part of the world," Pokharna said.

According to experts, Reliance Industries' move to demerge its financial services business into Reliance Strategic Investments (RSIL) and rebrand it as Jio Financial Services (JFSL) is likely to disrupt the financial sector significantly. With a vast distribution network and customer ecosystem derived from its other businesses in retail, telecom, and finance, as well as access to a large amount of data, Jio Financial has the potential to become a complete financial services conglomerate. It could potentially exploit this data like other technology giants such as Alibaba, Google, and Facebook. Jefferies report suggests that JFSL's initial focus could be on consumer lending, especially electronics, and merchant financing due to Reliance Group's large presence in these areas. The report also mentions that JFSL may aspire to foray into non-lending financial businesses such as life and general insurance and asset management, taking advantage of recent regulatory changes. JFSL aims to have a larger balance sheet by bringing in more capital, which would help it to enter multiple financial sectors. The demerger and listing of JFSL could take six months. JFSL has appointed KV Kamath as the non-executive chairman and Hitesh Sethi as the new CEO.