A month ago, at the India Digital Summit, Rajan Anandan, managing director of venture firm Sequoia India, engaged Vijay Shekhar Sharma, Paytm’s founder, in an online fireside chat. His first question wasn’t a surprise: “You probably got more flak for the IPO. What happened with this IPO?”
As Paytm’s stock plummeted from its listing price of ₹1,955 in November last year, Sharma has had to make multiple public statements to soothe investor nerves. He put up a spirited defence of the company’s business at this summit, too, and went on to say something interesting about Paytm’s credit business.
“For our credit business, we should be benchmarked against only one guy and that is Bajaj (Finance),” he said in his usual animated self. “We should be looked at for the scale we deliver in terms of total loans, value of loans, and quality of loans.”
People soon pointed out how the two companies are different: while Paytm earns fees on sourcing loans—the company does not have a licence to lend—Bajaj Finance can lend and earn interest.
The lack of opportunities to make money in the payments business and the array of opportunities in the lending business is perhaps making India’s richest man think, too.
Mukesh Ambani’s Reliance Industries Ltd (RIL) group is gradually changing its financial services plans. It is morphing an existing non-banking financial company (NBFC) into a retail lending behemoth.
In parallel, RIL’s plans of launching Jio Payments Bank along with the State Bank of India may be further delayed as it fine-tunes plans around a full-fledged retail lending business as opposed to being just a payments service provider.
At the heart of this push to build a retail franchise is Reliance Retail Finance Ltd, one of the many unlisted companies of Ambani’s Reliance group. It is a wholly-owned subsidiary of RIL and, till 2018-19, had primarily functioned as an investment company to generate revenues for other group companies. As per CareEdge Ratings (erstwhile Care Ratings), the company was incorporated to engage in the business of investments in shares and securities in India.
However, since September 2019, it has stepped up to disburse retail loans.
The company did undergo quite a bit of morphing already—ever since it was formed two decades ago. It was incorporated on 19 January 2000 as Tex-Style Synthetics Private Ltd and renamed as Reliance Power Ventures Ltd on 17 May 2000. On 24 May 2000, it received a NBFC license from the Reserve Bank of India (RBI), according to CareEdge Ratings. Then, on 21 August 2006, it was rechristened as Reliance Retail Finance.tional marker of beauty, but among today’s skincare obsessives, get
Between 2019 and 2020, customers who bought Jio phones on a 12-month equated monthly instalment (EMI) programme, did not own them unless they repaid the loan, and instead had the right to use them. Reliance Retail Finance provided the back-end credit for these transactions. The financing model for Jio phones has now changed.
In a report dated 16 September 2021, the company’s management said that the idea is to tap the 400 million-strong customer base of Jio and Reliance Retail, one of India’s largest retailers, for consumer durable and personal loans.
“Reliance wants to emulate the success of Bajaj Finance,” said an analyst tracking the conglomerate. “In future, when you go to a Reliance store to buy a consumer durable product, you will have access to finance from its own subsidiary. Later on, Ambani would also be able to tap into these customers for personal loans, as well, since he will have their repayment trends.”
What SWOT says
To say that India’s retail lending market is crowded is an understatement. Banks, non-bank financiers and fintechs jostle for their own niches with every lender eyeing a share of the middle-class pie—customers who would spend on consumer durables and thereby need cheap credit. Several deep-pocketed public sector banks and equally well-capitalized private lenders have, over the last few years, moved away from lending to corporate borrowers. They have realigned their books towards smaller consumer loans.