'Japanese automakers explore ties with Shriram after MUFG investment'

Japan's Mitsubishi UFJ Financial Group has seen a surge in interest from Japanese automakers hoping to tap its 20 per cent stake in Indian non-bank lender ‍Shriram Finance to boost sales in ​the fast-growing Indian market, an MUFG executive said.

India has become a major investment focus for MUFG - Japan's largest banking group - and for clients such as Toyota, with business generated through the Shriram investment potentially lifting profitability across the group, Yasushi Itagaki, head of MUFG's global operations, told Reuters in an interview.

"Our customers are thinking about this more than we imagined," Itagaki ​said.

Improving profitability

Shriram is a major provider of commercial and passenger vehicle credit to SMEs and individuals, with more than 3,200 branches, including in regions where Japanese firms have little presence.

Since the deal was announced, MUFG has fielded calls from automakers seeking to grow sales, for instance by offering preferential financing through Shriram.

Once the acquisition is completed, MUFG plans to set up a dedicated team to develop such opportunities, with staff on the ground working alongside colleagues in Tokyo and Singapore, Itagaki said.

"It's very natural that we work together on this," Itagaki said.

He said the acquisition could further improve profitability, even after MUFG raised its medium- to long-term return-on-equity target to 12 per cent in May last year.

"If realising synergies is faster than we anticipated ??we may hit our targets sooner," Itagaki said.

India is also becoming a more attractive investment destination amid growing ‌geopolitical uncertainty.

"In an environment of protectionism and fragmentation, ​you don't want to rely too much on external demand. I think the U.S. and India are two major countries that can stand firmly on their domestic demand," ??Itagaki said.

MUFG's $4.4 billion investment for a 20 per cent stake in Shriram - the largest cross-border investment in India's ??financial sector - ‍adds to its corporate banking, digital finance and startup investments in the country.

Restrictions on foreign investment in India's financial sector are gradually easing, and Itagaki met with Prime Minister ‍Narendra ‌Modi, the central ​bank governor and other senior officials to advocate for the ‍acquisition.

At a press conference last month, an MUFG Bank executive said lifting the Shriram stake ‍above ‍50 per cent was a possibility, ‌but Itagaki said further investment was not currently planned.