How Jio-BoFA deal signals growing push to tap underserved MSME sector

India’s underserved MSME borrowers in Tier-II to Tier-IV cities could emerge as one of the most attractive pockets of the retail lending market post Jio-BoFA deal, with the NBFC segment expected to grow up to 18 per cent in FY27. 

MSME lending the key opportunity

 

Sunny Agrawal, head of fundamental research at SBI Securities, said the investment from BofA into Jio Credit solidifies foreign interest into the Indian NBFC sector, particularly the MSME segment in the retail basket. He noted that, “MSME segment - which forms the majority of the Indian economy in tier II-IV cities - is fairly underserved and underpenetrated”

 

 

Agarwal cited the segment’s need for strong segmental know-how, customer touch, customised underwriting and on-ground presence as the main attraction factor for foregin investment into the doemstic NBFC space. “NBFC retail segment is expected to witness a healthy growth of 16-18 per cent in FY27,” he noted.

 

Last week, Jio Financial Services (JFS) and  Bank of America Corporation (BoFA) signed a definitive agreement for NB Holdings Corporation, a wholly owned subsidiary of BoFA, to acquire a 49.9 per cent stake in Jio Credit, the lending arm of Mukesh Ambani’s JFS, for ₹18,268.22 crore, or $1.9 billion, through a preferential allotment of equity shares and warrants.

Jio Credit deal puts retail lending in focus

 

Post the deal, analysts say the opportunity is not about a broad NBFC boom, but about lenders that can build a strong position in borrower segments that traditional banks still largely underserve. 

Dr. Ravi Singh, chief research officer from Master Capital, attributed the international bank’s interest in the domestic NBFC firm to India's rising household borrowing and “relatively benign” delinquency levels. He noted that “NBFCs sit precisely in the gap that traditional banks leave underserved for small businesses, MSMEs, and first-time borrowers who don't always fit neatly into a bank's lending.” 

 

The partnership route offers the best of both worlds: exposure to a fast-growing credit market without the operational grind of building a branch network from scratch, while leaning on a local partner who already understands the customer and the distribution, he added. 

 

In the books of Jio Financial Services (JFSL), Jio Credit Ltd (JCL) has recorded strong growth over the past year. JCL’s gross AUM rose 2.6 times to ₹30,667 crore in Q1 FY27 from ₹11,665 crore in Q1 FY26, while disbursements increased 2.7 times to ₹11,252 crore from ₹4,127 crore. PAT more than doubled, rising 113% to ₹96 crore from ₹45 crore a year earlier.

Why foreign lenders are betting on NBFCs

 

Notably, the Jio Credit deal is not an isolated instance of foreign capital flowing into India’s NBFC sector. It comes amid a broader wave of large overseas investments in the country’s financial sector, including MUFG’s investment in Shriram Finance, Bain Capital’s investment in Manappuram Finance, ENBD’s investment in RBL Bank and Blackstone’s investment in Federal Bank.

Niche lending key to sustaining growth

 

In terms of outlook, Agarwal noted that there are ample opportunities to grow in the Indian NBFC sector. However, the company has to form a niche in a particular segment, ticket size and borrower cohort to drive profit growth. “The NBFC sector has lately witnessed diversified NBFCs foraying into non-core segments such as MFI and gold loans, which can ratchet up competition, leading to margin pressure.”

 

However, on the valuation front, Singh noted that for the broader NBFC space, this deal raises the bar on valuations and credibility. The transaction values Jio Credit at roughly $3.8 billion, “which is striking for a two-year-old lender and will likely prompt investors to relook at how they price growth-stage NBFCs.”

 

But at the same time, this premium reflects the broader structural opportunity in the sector as NBFCs tend to reach borrowers that traditional banks often find difficult to serve, while India’s relatively low credit penetration, young population and formalising cash flows leave significant room for further lending growth, he added.

 

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