SBI's loan to Reliance was pretending to be an investment in Jio Payments
Is it a bird? Is it a plane? No, it's a loan!
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In the financial world, if you’re a company giving money to another company, it’s likely for one of three reasons:
You’re lending it money and expect some fixed interest in return. The riskier the company you’re lending to, the more interest you expect.
You’re investing in the company. If things work out, the value of your stake in the company goes up, and you make money. If not, you lose money, but that’s okay. That’s the game you’re playing.
You’re investing, but the investment is strategic. You both bring something to the table, fill in each other’s gaps. Eventually, you’ll run a great business together and own a share of the profit.
Nice, clear differences. Right?
In 2018, the State Bank of India gave some money to Reliance Industries. The idea was that they would start a payments bank together called Jio Payments Bank. Reliance owned 70% of the company and SBI the remaining 30%.
On the face of it this was a strategic investment for SBI. But even at that time, this was a little unusual for a few reasons:
Payments banks are a weird type of bank. They can take money from people as deposits, but can’t lend that money out as loans. Making money is tough.
SBI is a bank! It could do everything Jio Payments Bank could ever do, and much much more.
Jio Payments Bank sounds like Reliance, not like SBI.
Maybe SBI saw great business potential in Jio Payments and was happy to be a part of it. But then this happened last week:
The State Bank of India (SBI) has decided to divest its entire 17.8 per cent stake in Jio Payments Bank Limited, a joint venture between the state-owned bank and Jio Financial Services (JFS).
JFS will acquire the SBI’s stake for ₹104.5 crore, after which Jio Payments Bank will become its wholly-owned subsidiary, the Reliance Group firm said on Tuesday.
Okay maybe this wasn’t a strategic investment after all but was financial? After eight years, SBI sold its entire stake back to Reliance itself for ₹104.5 crore ($12m).
Intuitively we know that it wasn’t the most successful investment. Jio Payments Bank is still a no-name in the payments industry. And it’s been losing money like a tech startup (with a loss of ₹50 crore last financial year) but with a revenue (₹30 crore last year) that doesn’t show for it.
But just how bad a financial investment was this for SBI? In FY 2019, SBI invested ₹70 crore ($8m). In FY 2022, it invested another ₹9 crore ($1m). So that’s a total of ₹79 crore. Then in FY 2025, it’s selling its stake for ₹104.54 crore. That’s an annual return rate of 4.57%.1
SBI would’ve made more money had it invested in its own fixed deposits.
Not a lot of interest
So, SBI gave Reliance some money. Then Reliance gave it back with a 4.57% annualised return.
This sounds a bit like… a loan? Lending to start a startup is a no go, too risky for any bank’s underwriting team. But an investment is fine! So maybe it made sense to just call it an investment instead?
The pieces of the puzzle fall into place if you treat SBI’s investment as a low-interest loan. But hey, of course, it was just a strategic investment in a joint venture with Reliance that happened to not work out.
Photo by Khanh Nguyen/Pexels
I’m referring to XIRR here. It’s a simple calculation on Google Sheets.
At least they were able to make a return.
Sad to read the article, PSU like SBI doesn't take the ownership for the public money. Your efforts to bring to the public forum is highly appreciating. Just imagine what other PSU's are doing with setting up the Ponzi schemes like this to make the richer more richer...