Japan’s Mitsubishi UFJ Financial Group (MUFG) will acquire a 20% stake in Shriram Finance Ltd for $4.4 billion, marking the largest cross-border investment ever in India’s financial sector, the Indian non-bank lender said on Friday.
The transaction comes amid a sharp acceleration in foreign investment into India’s banking and financial services industry.
Deal values in the sector have reached nearly $15 billion so far this year, according to Dealogic data, more than double the $6.5 billion recorded in 2024.
The MUFG investment follows closely on the heels of Emirates NBD Bank’s $3 billion purchase of a 60% stake in RBL Bank in November, which had been the biggest foreign investment in the sector at the time.
“The entry of MUFG as a key investor reinforces global confidence in India’s financial services sector,” Umesh Revankar, executive vice chairman of SFL, said in the statement.
Shares of Shriram Finance rose by more than 4.3% to a record high of 906.85 rupees following the announcement.
Since reports of talks with MUFG first emerged in early October, the stock has gained about 46%.
Shriram Finance said the deal would strengthen its capital adequacy, improve its balance sheet and provide long-term growth capital.
The partnership is also expected to help the company access lower-cost funding and support its credit ratings.
Japan banks step up overseas push
Japan’s megabanks have increasingly sought growth overseas as their domestic market grapples with weak loan demand, thin margins and demographic decline.
India has emerged as a favoured destination, supported by rising incomes, strong credit growth and a rapidly formalising economy.
Earlier this year, Sumitomo Mitsui Banking Corporation (SMBC), a unit of Sumitomo Mitsui Financial Group, acquired a 24.2% stake in Yes Bank, beginning with a $1.6 billion investment for 20%.
MUFG’s deal with Shriram Finance now surpasses that transaction in scale.
Shriram Finance said the investment is subject to regulatory approvals. The non-bank lender is owned 24.9% by the Shriram Group.
Governance rights and non-compete terms
Under the agreement, MUFG will receive certain minority protection rights, including the ability to nominate up to two non-independent directors to Shriram Finance’s board.
It will also receive pre-emptive rights to maintain its proportional shareholding.
These rights will lapse if MUFG’s stake falls below 10% on a fully diluted basis, the company said.
MUFG will also pay a one-time non-compete and non-solicit fee of $200 million to Shriram Ownership Trust, the lender’s major shareholder.
That payment is subject to approval by Shriram Finance’s shareholders.
Stock reaction and what investors should know
The stock, a Nifty 50 constituent, has already climbed about 50% so far in 2025, marking its best calendar-year performance since 2017.
One key factor behind the rally was the pricing of the transaction.
Shriram Finance will issue shares to MUFG at ₹840.9 apiece, representing a discount of just under 3% to Thursday’s closing price.
That compares favourably with other recent foreign investments in Indian lenders, including Emirates NBD’s stake purchase in RBL Bank at a 6.5% discount, IDFC First Bank’s deal at around 5%, and Sammaan Capital’s transaction at a much steeper discount of nearly 18%.
Investors also appeared encouraged by the implied valuation.
The deal values Shriram Finance at about 1.9 times its one-year forward estimated price-to-book value, a level seen as attractive relative to peers such as Cholamandalam Investment and Finance, which trades at more than four times book value.
Beyond valuation, the market reaction reflected expectations that the capital infusion would strengthen Shriram Finance’s balance sheet and growth prospects.
Analysts said the partnership with MUFG could help lower funding costs through access to cheaper liabilities, improve credit metrics, and potentially pave the way for a credit rating upgrade.
The additional capital is also expected to support expansion in core segments such as commercial vehicle and MSME lending.
“Shriram Finance trades at three times book and including this – Rs 39,000 crores, their net worth will move up to close to Rs 90-92,000 crores, which makes it more capitalised than several banks. In fact, even the large private sector banks aren’t capitalised to this extent other than maybe the top four,” N Jayakumar of Prime Securities told CNBC-TV18.
India’s appeal contrasts with Japan’s constraints
India offers growth drivers that Japan increasingly lacks, including expanding retail and small-business lending, infrastructure-led investment, and relatively low credit penetration.
Demand for vehicle loans, consumer credit, and MSME financing continues to rise at a robust pace.
Japan’s banking sector, by contrast, is mature and highly concentrated among its three megabanks — MUFG, SMBC, and Mizuho.
Population decline, an ageing society, and subdued household borrowing have capped long-term growth prospects.
While the Bank of Japan began raising interest rates last year, the shift has not materially changed the structural challenges facing lenders.
Recent deals by MUFG, Mizuho, and Daiwa Securities underscore how sharply Japanese financial investment into India has picked up, signalling growing confidence in the country’s financial system.
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