How Jio Fintech platform will fit into the Reliance gameplan

When Reliance Industries announced its results on Friday, the profits were flat on a yoy basis and sharply lower on sequential basis. This was largely on account of the underperformance of the oil to chemicals (O2C) business. On the one hand, the O2C business had been hit by the falling gross refining margins (GRM). On the other hand, the business was also hit to the extent of Rs4,500 crore in terms of lost profits due to the special additional export duty (SAED) imposed by the government. However, despite these headwinds, the stock did not show a very sharp fall in price. The reason was Jio Finance.

While announcing the results for the September quarter, Reliance also announced that it would be hiving off its financial services unit Jio Finance into a separate unit and would also list the stock on the bourses.  It was also underlined that the existing shareholders of Reliance Industries would get shares in the ratio of 1:1 for their holdings in Reliance Industries. Under the scheme of arrangement, Jio Financial Services Ltd would be demerged from Reliance Industries and listed on the stock exchanges. The par value of the financial services company stock is also Rs10, so it would be a direct 1:1 entitlement for RIL owners.

Jio Financial Services is currently known as Reliance Strategic Investment Ltd and is a wholly owned subsidiary of Reliance Industries. So RSIL will undergo a name change and then it will be hived off. RSIL is currently an RBI registered non-deposit taking but systemically important (ND-SI) non-banking finance company (NBFC). It has been driving a lot of the financial services franchise for the group. It may be recollected that at the time of the separation of the group into the MDAG and the ADAG segments, the entire financial services business was given away to the ADAG group. RSIL will be the MDAG Fintech foray.

For the Reliance Industries group it also comes with a strong and industry leading franchise in oil to chemicals (O2C), retail and digital and it is India’s largest player in all the 3 segments. While the O2C business is largely institutional in nature, the retail and digital businesses are more customer facing. Jio Financial Services will enable a large digital fintech platform in the Indian market. As of now, it is not yet known whether the fintech platform would be an agnostic fintech platform or a Reliance exclusive fintech platform. For that, we need to await more details from the company in the coming days.

One of the big advantages that Jio Financial Services will have is the backing of the Reliance group and the advantage of a large and formidable balance sheet. In addition, its digital and retail business have a huge number of customer touchpoints where the Fintech advantage can be effectively leveraged. Also, since Reliance sees most of its business coming from the digital platforms in the coming years, this fintech exercise will be a logical extension. The group expects it to be a lateral and a back integration to add value to the entire Reliance digital and retail ecosystem. That should be an interesting development.