Tokyo-based MUFG Bank is acquiring a 20% stake in Shriram Finance for Rs 39,618 crore ($4.4 billion), making it the largest cross-border investment in India’s financial services sector.

MUFG Bank, a consolidated subsidiary of Mitsubishi UFJ Financial Group, will pick up the stake through a preferential issue of equity shares. The acquisition of 47.1 crore shares will be at Rs 840.93 apiece.

Post completion of the deal, MUFG will have the right to nominate up to two non-independent directors on Shriram Finance’s board. This, however, will lapse if MUFG’s stake falls below 10% on a fully diluted basis.

Significance of the deal

Shriram Finance said the deal would substantially enhance its capital adequacy, strengthen its balance sheet and provide long-term growth capital. It will help drive expansion in segments such as new commercial vehicles and MSME while enhancing "funding capacity and profitability through improved creditworthiness".

It further stated that the partnership will aid in accessing low-cost liabilities and strengthen Shriram Finance’s credit ratings.

The NBFC further said that the collaboration will unlock synergies in technology, innovation and customer engagement, driving sustainable growth.

How does MUFG view the deal

MUFG sees the investment as a strategic step to establish a business foundation in India’s MSME (micro, small and medium enterprises) and retail segments. The Japanese firm gets to tap into India’s growing domestic demand.

Asia is MUFG’s second home market, with India among its most important global markets as it is expected to become the world’s third-largest economy by 2030.

“Through the proposed alliance, by combining MUFG’s broad client network and knowhow built through managing partner banks with Shriram Finance’s strong local presence and longstanding customer relationships, we aim to support the development of India’s road transport infrastructure and logistics value chain, as well as contribute to advancing financial inclusion, which is an important policy agenda in India,” it said.

MUFG’s earlier India investments include the $300 million Ganesha Fund launched in 2022 to support the growth of startups and DMI Finance, a non-banking provider of digital financial services to strengthen the retail digital lending space.

Current strength

Being the country’s second-largest retail non-banking financial company (NBFC), Shriram Finance has assets under management (AUM) exceeding Rs 2.81 lakh crore.

In FY25, it posted a net profit of Rs 9,761 crore and had capital adequacy of 20.68% against the regulatory requirement of 15%.

Shriram Finance offers commercial vehicle loans, MSME loans, tractors & farm equipment loans, gold loans, personal loans and working capital loans. The focus is on commercial and passenger vehicle loans, with a particularly strong presence in the used vehicle loan market. It has a network of 3,225 branches, employing 78,833 people and serving 9.6 million customers.

Biggest deal

The proposed deal between Shriram Finance and MUFG is the biggest in the banking and financial services sector, surpassing Emirates NBD Bank’s Rs 26,853 crore ($3 billion) investment for a 60% stake in RBL Bank in November.

This year has seen strong foreign investor interest in India’s financial services sector.

In May, Sumitomo Mitsui Banking Corporation (SMBC) bought a 20% stake in Yes Bank for Rs 13,483 crore ($1.6 billion). Later, it purchased an additional 4.2% from private equity firm Carlyle for approximately Rs 2,850 crore. Thus, for a 24.2% stake in Yes Bank, the Japanese firm spent Rs 16,333 crore.

IDFC First Bank got Rs 7,500 crore from Warburg Pincus (9%) and Abu Dhabi Investment Authority (5.1%), while Federal Bank got an investment of Rs 6,196 crore from Blackstone for 9.99%.

In October, Abu Dhabi-based International Holding Company (IHC) took for Rs 9,000 crore a 43.5% stake in Sammaan Capital (formerly India Bulls Housing Finance), a housing finance company.

According to Dealogic data, the sector has seen mergers and acquisitions (M&As) worth nearly $15 billion this year, up from $6.5 billion in 2024.

Will Shriram Finance turn into a bank?

The big-ticket acquisition gives enough muscle for Shriram Finance to move from an NBFC to a bank. There is, however, no indication from the company that such a move is in pipeline.

Welcoming the deal, Uday Kotak, founder and director of Kotak Mahindra Bank, said he is happy to see a reputed global bank investing in Shriram Finance in a big-ticket foreign investment.

“Will Shriram continue as an NBFC which has huge potential without regulatory constraints of a banking company, or apply to become a bank in due course?” he observed in a social media post on X.

Restructuring

In a regulatory filing, Shriram Finance said that Shriram Capital, the holding company, is looking to restructure, to exclusively hold its lending business under one arm.

Besides the non-bank lender, Shriram Capital holds other businesses like insurance, mutual fund, wealth advisory and retail stock broking.

The restructuring is only at a preliminary and exploratory stage. No final decision, commitment or approval has been taken by the board of Shriram Capital, the filing said.

Japanese investments in 2025

Japan’s financial institutions have looked at India’s fast-growing economy as a good expansion route, seeking to beat years of a shrinking domestic market and rock-bottom interest rates.

Besides SMBC’s investment in Yes Bank and MUFG’s in Shriram Finance, Mizuho Financial Group agreed to acquire a controlling stake in Avendus Capital for $516 million.