The Demerger of Reliance Industries Limited and Jio Financial Services
The Financial services arm of Giant – Reliance Industries Limited is being shaped into a new company, Jio Financial Services Limited.
In September 2022, Reliance Industries Limited had announced its plans to spin off its leading Fin-tech division. It sought the approval of its shareholders for the same. In May 2023, on receiving the approval of shareholders and creditors, Reliance Industries Limited finalised its decision to spin off Reliance Strategic Investments Limited and rename it as Jio Financial Services Limited. In June 2023, it got its approval from the National Company Law Tribunal, the official body which makes formal judgements on issues related to Indian companies.
What is a demerger?
In simple words, A demerger is the division of a company into two or more companies. Big companies often need to restructure or reorganise their functioning to carry out various business activities more efficiently. Splitting a company may at times serve this purpose effectively.
Why the JFS demerger?
Jio Financial Services plans to launch a consumer and merchant lending business. Consumer and merchant lending would take place through analysis of proprietary data, that is, the data which is owned by an individual organization, and the data which would give competitive advantage to the organization. Other companies which are already making a mark in this area are NBFCs (non-banking financial firms) like Bajaj Finance and fintech companies like Paytm.
Listing of Jio Financial Services Limited on Stock Exchange:
Reliance Industries Limited had stated that the record date for allocating the shares of Jio Financial Services would be July 20, 2023. This implies that shareholders of Reliance Industries, who had bought shares before the 19th of July, received shares of Jio Financial Services. The demerger was executed in a 1:1 ratio, which means for every share of Reliance Industries a shareholder owned, they received one share of JFS. JFS is set to list on Indian Stock Exchanges on Monday, 21st August 2023.
Deflation in China
Quick tip: A sustained and general decrease in the overall prices of goods and services within the economy is called deflation.
Chinese business, in expectation of a surge in demand soon after removing the COVID-19 restrictions, piled up inventories and stocks. This increased the Aggregate supply in the economy. But then, what happened was completely opposite to the expectations. People were afraid and uncertain of their future due to rising unemployment and gloomy economic conditions. Hence, they started saving more and spending less. This decreased the Aggregate Demand in the economy. Entrepreneurs are reluctant to take loans, people are hesitant to make huge investments in real estate. All these have pushed the economy to deflation.
India can use this as an opportunity to become the next best manufacturing hub of the World. But the downside is that China is a major importer of vital resources. A slowdown there would mean a hit on the Indian export businesses too.
RBI Monetary Policy Highlights
Quick tip: RBI holds Monetary Policy Meetings approximately once in 2 months to review the economic conditions, analyze important economic indicators and determine the appropriate course of action to achieve their policy objectives.
The last RBI MPC Meeting was held from 8th-10th of August, 2023. The country is currently in an inflationary trend. Hence the decisions were on examining the current situation and working ways to curb money supply and reduce inflation levels in the economy.
- The RBI marginally increased the inflation forecast from 5.1% to 5.4%. Their target is to bring it to 4%.
- Incremental Cash Reserve Ratio(ICRR) is the percentage of Net Demand and Time Liabilities (NDTL)* that the banks are required to maintain as cash reserves with the RBI. In the current meeting, it is announced that ICRR will be 10%. This is mainly imposed to absorb the excess liquidity in the banking system.
* In simple terms, banks categorize their deposits into four divisions. Current Accounts, Savings Account, Fixed Deposits and Recurring Deposits. The first two categories are Demand Liabilities and the last two are time liabilities. Hence, ICRR is a percentage on the net of these values.