Jio Financial modifies plans in response to the RBI's unsecured lending action

Jio Financial modifies plans in response to the RBI's unsecured lending action

Jio Financial modifies plans in response to the RBI's unsecured lending action

With the introduction of Jio Financial Services, billionaire Mukesh Ambani's Reliance Industries hopes to take on well-known lenders like Bajaj Finance.

In response to the Reserve Bank of India's (RBI) new limits on unsecured consumer loans, Jio Financial Services Ltd. (JFSL) is altering its lending strategy, the firm said during its Monday evening post-earnings call with investors.

The non-banking financing business (NBFC), supported by Mukesh Ambani, has opted to switch its emphasis from unsecured lending to secured loans, including leases. Analysts claim that during the company's earnings call, it disclosed that it had established a 100% leasing subsidiary to handle leasing activities.

The market's response to unsecured lending has been remarkable, prompting a measured approach to unsecured products, the business said in its investor presentation. "Big possibility in the secured loan sector."

Investment banking and capital markets company Jefferies said in a report on Monday that "Jio FS will focus on secure products with the official debut of DaaS (Device-as-a-Service), comprising supply chain financing, loans against shares as well as home loans as well as airfibre, leasing of phones and laptops is." Additionally, capacity development for consumer durable loans and unsecured personal loans is carried out on a broad scale using established risk and underwriting models.

Jio's investor presentation states that the NBFC thinks the DaaS model helps boost cross-selling potential and has lesser risk since it owns assets. In order to satisfy suppliers' demands for operating cash, the firm also intends to provide supply chain finance options.

However, Jio Financial Services has finished testing (in a sandbox) for individual as well as consumer durable loans. Though capacity for unsecured and consumer durable goods has already been built, house loans and loans backed by shares or mutual funds are in the works.

According to the business presentation, Jio Financial Services has also submitted an application to become a Core Investment business (CIC) instead of an NBFC. Similar to a holding corporation is CIC.

After Reliance's financial services division failed, billionaire Ambani's Reliance Industries launched Jio Financial Services in an attempt to take on more seasoned lenders like Bajaj Finance.

In addition to consumer durable loans at 300 outlets throughout India, it has also started offering personal loans in Mumbai to salaried and independent contractors. You may access the services via the MyJio app as well.

Since the RBI raised the risk weight on unsecured loans last year, banks and non-bank financial companies (NBFCs) have been hesitant to boost their lending to consumers. 12–13% of NBFC credit is made up of unsecured loans, and analysts predict that this category will develop more slowly in 2024 as a result of increased risk, higher risk weights, and central bank directives to lenders.

Unsecured personal loans increased 41% year over year for NBFCs in the September quarter, accounting for 22% of the additional growth from the bottom up.

In a separate study released on January 2, Jefferies said, "We expect credit growth in NBFCs/HFCs to manage at 16-17% in FY20-25-26 versus 18-19% in FY24, due to unsecured credit growth." "There will be a moderate increase in loans."

Due to a rise in operational expenditures for corporate social responsibility, staff development, and capacity building as well as the lack of dividend income and shares held in Reliance Industries, Jio Financial Services reported a 56% sequential fall in net profit to ₹294 crore for the October–December quarter. Spending that is appropriate.

With ₹371 crore in dividend income, the NBFC had a net profit of ₹668 crore during the most recent quarter, which ran from July to September.

From ₹186 crore at the end of the September quarter to ₹269 crore at the completion of the December quarter, the company's net interest income increased by 44.6% sequentially. By the end of the December quarter, however, other income had dropped by 65.6% to ₹145 crore.