Why Jio Credit is emerging as Bank of America’s key India growth engine | Company News

Then in 2013, Ambani joined BofA’s 13-member non-fiduciary Global Advisory Council chaired by BofA’s current Chair and Chief Executive Officer (CEO) Brian Moynihan. The Council shares expertise and insights on the bank’s global engagement.

So, it was not a surprise for the financial sector watchers that BofA decided to put in close to $2 billion in Jio Credit, the lending arm of Ambani’s financial sector entity Jio Financial Services.

On Wednesday, NB Holdings Corporation, a wholly owned subsidiary of Bank of America Corporation, decided to pick up 49.9 per cent stake in Jio Credit for ~18,268.22 crore, or $1.9 billion, through a preferential allotment of equity shares and warrants. BofA will initially acquire a 26.5 per cent stake in Jio Credit, which can rise to 49.9 per cent upon exercise of warrants. The transaction is subject to regulatory and statutory approvals. Jio Financial Services – the holding company of Jio Credit – will have the remaining stake.

The deal is the second-largest investment in the burgeoning non-banking financial company (NBFC) space, which is giving traditional banks a run for their money. In the last one year, the NBFC sector’s retail loans have grown 20 per cent to ~25 trillion, as compared 16 per cent growth to ~71 trillion for commercial banks.

Jio Credit’s growth has been phenomenal since its inception two years ago. In just two years, its assets under management (AUM) has crossed ~30,000 crore. It has expanded its physical presence to 24 locations across 18 cities in India, enhancing customer outreach and ensuring retail product diversification.

Reliance has been a disruptor in segments that it operates in – be in telecom or retail. For BofA, India is a key priority market and engine of international growth strategy. Jio Credit fits the bill.

“India is one of the world’s most important growth markets, and this investment reflects our confidence in its future (as) a market we know well and have supported for decades,” Moynihan said while announcing the deal.

The $1.9 billion investment will be able to fuel Jio Credit’s growth for at least two years, as it expands to new areas of lending. BofA expects the NBFC to come up with new products in the near future. At present, Jio Credit offers home loans, loans against property, loans against shares, corporate loans, and SME loans. Home loan and loans to corporates and SMEs are 90 per cent of its AUM of ~30,667 crore as of June-end.

Jio Credit has not yet expanded its portfolio into unsecured loans. Most lenders toned down growth of such loans in the last few years after the regulator increased risk weights. Gold loan is another area where it is not present. Gold loans by NBFCs registered almost 70 per cent growth in the last one year. For banks, gold loan growth rates are over 90 per cent.

Jio Credit had said that its objective is to build a high-quality, high-yield book at scale. Before long, it will likely be classified as an upper-layer NBFC by the regulator, as the norms for being in that layer have shifted to a principle-based, size-linked framework from this year. NBFCs with AUM of ~1 trillion will be in the upper layer and face enhanced regulatory requirement. Upper-layer NBFCs are required to list in the exchanges within three years of operation.