Ambani’s Plan To Upend Indian Finance Lands With A Thud

(Bloomberg Businessweek) -- Once a year, Mukesh Ambani—the publicity-shy Indian tycoon who’s Asia’s richest man—makes a widely anticipated speech to shareholders of his conglomerate, Reliance Industries Ltd. He typically serves up grand announcements, and A-list guests such as Satya Nadella and Sundar Pichai often make cameos. This year’s version landed with something of a thud.

During the Aug. 28 address, Larry Fink, the chief executive officer of BlackRock Inc., made a surprise appearance by video link. The reason: to show support for a new joint venture with Jio Financial Services Ltd. (JFS), a unit that Ambani had spun out of Reliance a week earlier with a listing in Mumbai.

The goal is to create a lender under Ambani’s Jio brand—a Hindi word that translates roughly to “live”—which he says can upend India’s $1.8 trillion financial sector much as he has transformed the country’s telecommunications and retail industries. The new venture will “accelerate the replication of India’s dazzling growth story,” Ambani said during the two-hour presentation. “JFS plans to democratize financial services.”

In 2016, Ambani brutally undercut rivals with free calls and cheap data after launching his Jio cellphone service, which quickly became India’s biggest carrier, with 450 million subscribers today. And Reliance has steadily built up its retail arm, valued at $100 billion after a recent deal with the Qatar Investment Authority, selling everything from groceries and clothing to electronics and jewelry in more than 18,000 outlets and via its fast-growing web store.

Investors have been less than enthusiastic about Ambani’s latest idea, pushing shares in Jio Financial down 6.3% since their Aug. 21 debut, as India’s benchmark BSE Sensex Index has seen a 3.7% rise. While Reliance’s track record “disrupting the retail and telecom segments has been quite impressive, we believe lending is a different game,” Nomura Holdings Inc. researchers wrote in an August report.

Ambani envisions a super-app like China’s WeChat, which offers online shopping, video streaming and messaging alongside financial services such as insurance, stock trading, a payment service similar to Google Pay and easy access to loans. The goal is to attract small-business owners and some of the 190 million Indians working in informal jobs who lack bank accounts, according to people familiar with the plans, who asked not to be identified because the discussions are private. By forging relationships with people in underserved areas and no ties to the formal financial system, Ambani says the company can become India’s largest nonbank lender.

BlackRock, which five years ago unwound a partnership selling mutual funds in India with another company, aims to regain a toehold in the world’s most populous country. “The convergence of rising affluence, favorable demographics and digital transformation across industries is reshaping the market in incredible ways,” Fink said at the annual meeting.

Indian law restricts data sharing even between different units of the same company, so Jio Financial won’t have access to information from the parent group’s phone and retail arms. That will limit targeted advertising or product development based on insights Jio might glean from its other businesses. And India’s banking and markets regulators are unlikely to grant any exemptions to policies for Reliance, according to an industry analyst who asked not to be named discussing sensitive information. That’s in contrast with the more flexible rulemakers who helped Ambani break into telecommunications by easing provisions regarding minimum pricing for phone calls.

Jio Financial doesn’t have a banking license, so it won’t have access to low-cost deposits from savings accounts, like the banks it will be competing with. Reliance’s payment platform, Jio UPI, is far behind Google and local rivals BharatPe, Paytm and PhonePay. And Ambani’s plan to offer loans to small businesses will face stiff competition from banks and various nonbank lenders that have targeted that sector in recent years. “The lending space is becoming more crowded,” says Kranthi Bathini, an equity strategist at WealthMills Securities Ltd. in Mumbai.

During his speech, Ambani provided only vague outlines of the expanded financial-services strategy. While he said he aimed to offer brokerage services, it’s unclear what that might entail. There were only scant details of the merchant lending plan. And though insurance is a key part of the offering, that part of the business doesn’t yet have a leader. “Their clear business plan—the product and services they’re planning to launch—aren’t yet out in black and white,” Shweta Rajani, head of mutual fund advisory at Anand Rathi in Mumbai, told Bloomberg TV.

Ambani is counting on hundreds of millions of Indians to adopt the service, but his message hasn’t yet reached many of those he wants to serve, so Reliance will need to spend heavily on marketing and offer competitive pricing to win them over. Vinod—owner of a small grocery store in the Mumbai suburb of Andheri, who goes by one name—is exactly the sort of business owner Jio Financial hopes to sign up, but he says he knows little about Ambani’s plans. “We are being chased by banks all the time for loans and deposits,” he says. “So the Ambani company will be one more.”

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