Will Jio Financial (JFS) disrupt Bajaj Finance business?

Which business segment is Jio Financial (JFS) entering?

Reliance has announced entry into lending business through its newly listed Jio Financial Services ( JFS). Different segments of business will be

1. Reliance Retail Finance
2. Reliance Payment Solutions
3.Jio Payments Bank
4.Reliance Retail Insurance Broking
5. Asset Management Company in JV with Blackrock

Primary business of Jio Financial (JFS) will be digital first consumer lending (digital products loans, consumer durable loans, instant personal loan products) and merchant lending. As experts project, digital lending wave has just started in India led by internet and smartphone penetration, UPI revolution, and it is going to be a very big segment in coming times.



Unique Strengths of Jio Financial Services (JFS)

Huge customer base

Mukesh Ambani in Reliance Annual Report FY 23 mentioned "Jio Financial Services aims to provide simple, affordable, and innovative digital-first solutions"

1. Consumer durables & digital products lending
Jio Financial (JFS) will immediately have access to captive customer base of 550 Reliance Digital stores for consumer durables lending.

2. Consumer BNPL loans
Jio Financial (JFS) will have access to 50crore customers of Jiomart ( grocery & non-FMCG platform)and Ajio platform ( fashion apparel platform) customers who opt for pay later options and convert their online purchases to EMI.

3. Consumer personal loans
Jio Financial (JFS) will have access to huge database of 18040 Reliance Retail stores, Ajio, Jiomart platforms for cross-selling them personal loans- these will be probably digital quick approval type in nature.

4. Merchant loans
Jiomart and Reliance Retail has huge existing vendor base- which will serve as immediate customers for merchant loans based on existing transactions with Reliance.

Access to low cost capital & huge capital base

Jio Financial (JFS) will have access to very low cost capital considering Reliance bonds are best rated in market. Further, a capital base of Rs 19350cr has been transferred from Reliance will be its initial capital which will be a huge base to start with, along with a net worth of Rs 1,20,000 cr.




Whom does Bajaj Finance give loans to?


Let's understand the Bajaj Finance business in detail.

Bajaj Finance started primarily as a captive financier of 2 wheelers and 3 wheelers of Bajaj Auto and then focused on consumer durables lending. Over the years, Bajaj Finance diversified their loanbook across various segments like personal loans, housing loans, SME loans, commercial lending, gold loans.

As on today, loanbook of Bajaj Finance is highly diversified.

Currently Bajaj Finance operates under 3 heads-


1. Bajaj Finance ( standalone business)

Existing business comprising of first 5 heads mentioned above

Urban Sales Finance / Rural Sales Finance
Urban B2C/ Rural B2C
2 Wheeler/ 3 wheeler loans
SME loans
Commercial loans
Co-branded credit cards


Urban Sales Finance / Rural Sales Finance (9% of AUM)

This part is consumer durables and digital products ( mobile, electronics) lending business which Bajaj Finance was the first mover in the last decade, and undisputed market leader now. Total AUM is Rs 22420cr.

Urban B2C/ Rural B2C ( 28% of AUM)

Under urban B2C comes the personal loans cross -sale (PLCS) , which is pre-approved loans given to existing customers of Bajaj Finance.
Second part is Salaried Personal loans (SPL) , which is given mainly to salaried customers with > Rs 5 lakh annual income. Out of total AUM ( Asset under management ) or loanbook of Urban B2C of Rs 50100cr, SPL consists of Rs 19500cr, rest is PLCS and retail spend financing ( online purchases converted to pay later options during checkout)

2 Wheeler/ 3 wheeler loans (5% of AUM)

2 wheelers/ 3 wheelers sold by Bajaj Auto 2 wheelers/ 3 wheelers, require financing are catered by this segment. Currently, it caters to 5100 Bajaj Auto dealers and 2700 other brand dealers.

SME loans (14% of AUM)

Out of the total SME loanbook of 33760cr

Professionals (Docs/CA etc) 11900cr
Business( unsecured) 18930cr
Secured - LAP 3270cr
Used Car finance 2760cr

Commercial loans (7% of AUM)

Commercial loans are issued to vendors of auto component manufacturers, light engineering manufacturers, specialty chemical manufacturers.

Co-branded credit cards

Bajaj Finance sells co-branded credit cards in partnership with RBL Bank and recently started DBS Bank also. Total cards in force as on date are 3.46crore.



2.Bajaj Housing Finance Ltd (BHFL)

This is a newer part of Bajaj Finance. It comprises of

Mortgage loans
SME loans
Commercial loans

Mortgage loans (31% of AUM)

69200cr AUM out of 77700cr of mortgage loans come under BHFL.
69200cr loanbook breakup of mortgage loans as follows

Home loans 55%
Loan against property (LAP) 18%
Lease rental discounting(LRD) 16%
Developer finance 8%
Rural mortgage 3%



3. Bajaj Finance Securities Ltd (BFSL)

Securities (stockbroking) business is very new, currently has 5.65 lakh customer base ( 2.34 lakh added in FY23). Current margin trading funding( MTF) loanbook is 1060cr. ( 47% growth YOY)

Moats of Bajaj Finance



Distribution Reach & First mover advantage

Bajaj finance has the following number of touchpoints in consumer durables/ digital product lending space

Consumer durable stores- urban 34000
Consumer durable stores- rural 37000
Digital products store 33000
Lifestyle retail stores 13200

Bajaj Finance being first mover in consumer durables/ digital products lending space, enjoys a more than decade-long serving connection with all consumer durables dealers, which is a deep moat, and cannot be taken away by Jio Financial except for its captive Reliance stores.


Access to captive customer base for cross-sell

Bajaj Finance has an existing customer base of 6.5crore to which they are able to cross-sell different lending products. Personal loans cross sell (PLCS) customers come from this database. This customer base is a moat for them.


Data Analytics & Operations efficiency

It is said Bajaj Finance is first a data analytics company, an NBFC later. Data analytics is the main moat of Bajaj Finance. Perhaps they are one of the first companies in India to recognize that and build their business empire upon that. The credit risk analytics experience they have as an NBFC along with efficient NPA management, asset liability management, efficient collections- all these are very strong moats which a new player like Jio Financial (JFS) has to learn and develop over time as they run the business.

Final words- Is disruption possible?


To conclude, all the above moats of Bajaj Finance acquired through decades of operations can't be taken away by Jio Financial (JFS) overnight. They will have to acquire that as they set up their business.

But JFS will have a headstart in terms of huge captive customer base and low cost of capital, and given their high capital base, they can scale up much faster than others- provided they are able to develop proper credit risk analytics framework and collections management.

Digital lending space( consumer / merchant) is emerging, huge and has enough room for both giants Bajaj Finance and Reliance to co-exist .

As we see, Bajaj Finance loanbook is highly diversified today, and they are no more a consumer durables lender only. Consumer durables/ digital products lending constitute only 9% of loanbook of Bajaj Finance, which is the segment that is under question post entry of Jio Financial (JFS).

Because the personal loans (28% of loanbook) is mostly from existing customer base of Bajaj Finance, and won't possibly be affected by Jio Financial entry.

There might be an impact on Paytm ( detailed stock analysis) though, as they are looking at digital lending as their next growth lever. Since Paytm is lending through tie-ups with lending partner NBFC partners, it will be interesting to see if they can compete with Jio Financial in terms of lending rates, though the market itself is very big.

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