Jio Financial Services Ltd (JFSL) is tweaking its lending strategy, following the Reserve Bank of India’s (RBI) recent restrictions on unsecured consumer loans, the company said in its post-earnings call with analysts on Monday evening.
The Mukesh Ambani-promoted non-banking finance company (NBFC), which had earlier planned to concentrate on unsecured lending, has now decided to shift its focus to secured loans, including leasing. According to analysts, the company said in its earnings call that it has set up a 100% leasing subsidiary to undertake lease operations.
“Large opportunity in the secured lending space. Noticeable market reaction vis-à-vis unsecured lending leading to calibrated approach towards unsecured products,” the company said in its investor presentation.
“Jio FS will focus on secured products with the launch of DaaS (device-as-a-service), which involves leasing of airfiber, phones and laptops along with supply chain financing, loan against shares, and home loans,” investment banking and capital markets firm Jeffries said in a report on Monday. “Furthermore, in unsecured PL (personal loans) and consumer durable loans, capability building is largely done, with developed models of risk and underwriting.”
According to Jio’s investor presentation, the NBFC believes that the DaaS model has lower risk due to asset ownership and also helps increase cross-sell opportunities. The company also plans to launch supply chain financing solutions to address the working capital needs of suppliers.
Jio Financial Services has, however, completed a sandbox (testing) for consumer durable loans and personal loans. Loans against shares or mutual funds, and home loans are in the pipeline, while the capability for unsecured and consumer durables products is already built up.
Jio Financial Services has also filed an application for conversion from an NBFC to a core investment company (CIC), according to the company presentation. A CIC is more like a holding company.
Billionaire Ambani’s Reliance Industries is seeking to challenge established financiers such as Bajaj Finance by launching Jio Financial Services, with the venture resulting from the demerger of Reliance’s financial services business.
It has already launched personal loans for the salaried and self-employed in Mumbai, besides consumer durable loans across 300 stores in India. The services are also available on the MyJio app.
Banks and NBFCs are going slow on unsecured consumer lending after RBI increased risk weights on unsecured loans last year. Analysts expect growth in unsecured loans, which constitute 12-13% of NBFC credit, to moderate in 2024 due to rising risks, higher risk weights, and the central bank’s nudge to lenders to exercise caution towards this segment.
For NBFCs, unsecured personal loans grew 41% year-on-year in the September quarter and accounted for 22% of incremental growth on a bottom-up basis.
“We expect loans growth at NBFCs / HFCs to moderate to 16-17% over FY25-26E vs. 18-19% in FY24e as growth in unsecured loans moderate,” Jeffries said in another report dated 2 January.
Jio Financial Services reported a 56% sequential drop in net profit to ₹294 crore in the October-December quarter owing to the absence of dividend income on shares held in Reliance Industries and an increase in operational expenses on employee addition, capacity building and corporate social responsibility expenses.
In the previous, July-September, quarter, the NBFC saw net profits of ₹668 crore on account of dividend income worth ₹371 crore.
The company’s net interest income grew 44.6% sequentially to ₹269 crore at the end of the December quarter compared with ₹186 crore at the end of the September quarter. Other income, however, fell by 65.6% to ₹145 crore at the end of the December quarter.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates & Live Business News.
Published: 17 Jan 2024, 12:15 AM IST