The legacy behind Mukesh Ambani’s Jio Financial Services

• Reliance Industries first entered the financial services business in the early 80s.
  
• Mukesh Ambani’s RIL had tried to enter the sector again in 2011 with a JV, but it never took off.
  
• With the might of telecom, retail and wholesale business, it can now foray into consumer and merchant businesses easily, say analysts.
  

The listing of Jio Financial Services would be a momentous occasion not just for investors but also Reliance Industries. It's been a while since the Mukesh Ambani led Reliance Industries has had ambitions of entering the financial services sector. The idea took shape back in 1986 but that business went to Anil Ambani after the family split the businesses after the patriarch’s death.

India’s fifth largest financial services company, Jio Financial Services, was born recently with a valuation of ₹1 lakh crore, right after this business was spun off from the parent, Reliance Industries. However, it was conceived at least two decades back by a young Mukesh Ambani who had seen the opportunity to provide the services ‘over the phone’ as the undivided Reliance group entered the telecom business.

Dialling back the clock

In 1986, Reliance Industries had incorporated a company called Reliance Capital & Finance Trust. Back then, the group was run by its founder Dhirubhai Ambani. This was an era of public sector banks and access to credit was restricted.

The company started off with annuity yielding businesses like leasing, bill discounting, and inter-corporate deposits. It also listed on the bourses in 1990, and took the name Reliance Capital in 1995.

In 1993, the company diversified into portfolio investment, lending against securities, custodial services, money market operations, project finance advisory services and investment banking. Later, it obtained a non-banking finance company (NBFC) licence in 1998. It later diversified into asset management, mutual funds, life and general insurances, commercial and industrial finance, stock broking and more.

Back in 2002, when Mukesh Ambani launched the group’s telecom service under Reliance Infocomm the plans for financial services were in lockstep with the telecom services for it. But before he could build this business on the back of CDMA powered telecom business, both the businesses changed hands and went into Anil Ambani as the group split in 2005. Reliance Capital went to Anil Ambani back in the day.

Fast forward eight years and the elder brother Mukesh Ambani, made a second coming at the telecom business by acquiring Infotel Broadband in 2010. It was a dramatic coup, where he bought into the company owned by Mahendra Nahata hours after it acquired pan-India broadband wireless access spectrum to launch high speed data services or 4G broadband.

Yet again in 2011, Mukesh Ambani’s RIL made another attempt at foraying into the financial services business by forging a financial services JV with global PE and hedge fund major DE Shaw. The JV had grand but futuristic plans to launch energy and carbon trading derivatives, along with PE, mutual funds and other security linked offerings.

Unlike its telecom business which disrupted and took over the market, this JV progressed slowly and soon hit a wall in 2017 when both the venture partners gave up and surrendered their memberships at both BSE and NSE.

The story, however, did not end there, it merely paused.

The stars have now aligned

Now, the stars have aligned for the business — with a wide offline and online presence — that weaves in the rapid digitisation of financial offers across the country – it’s making a grand comeback.

Jio Financial Services will be powered by the group’s wide retail presence in over 15,000 stores across formats be it supermarkets, digital stores. Its digital offerings have a vast customer base of over 400 million in telecom and over 200 million in retail, with some overlap.

The financial services business has direct and indirect means to reach the consumers, and also has relationships with kirana stores, thanks to Reliance Retail’s cash and carry business — giving them an inlay into merchant business too.

More importantly, it has the wealth of data – that can keep it far apart and cut above most fintechs, gathered from non-financial relationships.

“It can process and analyse this data in real time, to offer financial services, similar to Alibaba, Amazon, Apple, Facebook and Google. Also, unlike other fintechs, JFS will have a large balance sheet, not be asset-light and eventually manufacture most product offerings, giving it a significant competitive advantage, in our view,” says Macquarie.

JFS' key advantage will be low funding cost/ better access on the back of the group's high credit rating and ownership of 6.1% stake in RIL. “In the backdrop of the group's large presence in retail & telecom segments that drive a customer base of 20 million as well as vendor partnerships, JFS' first port of call could be consumer lending (esp. electronics) & merchant financing,” opines Jefferies.

Since the demerger, the company has been moving fast. It announced a deal with one of US’ largest investment companies Blackrock to launch an asset management company. Most analysts expect it to start services by September.

RIL already has a non banking financial company licence, which it can leverage to kick start consumer/merchant lending. “IRDA has been open to giving insurance licences and RIL may get into insurance verticals. JFS can be a real threat to fintech business models as well as NBFCs, in our view,” says Macquarie.

And most of them believe that Jio Financial Services has the ability to disrupt the sector as it did in the telecom sector in 2016.