Japan's MUFG to invest ₹39,618 crore for 20% stake in Shriram Finance

Japan-based Mitsubishi UFJ Financial Group will invest nearly Rs 39,618 crore to acquire a 20 per cent stake in Shriram Finance through a preferential share issue

Shriram Finance on Friday said Japan-based MUFG Bank, a consolidated subsidiary of Mitsubishi UFJ Financial Group (MUFG), will invest ₹39,618 crore, or about $4.4 billion—the largest foreign direct investment (FDI) ever in an Indian financial services company—to acquire a 20 per cent stake on a fully diluted basis through a preferential issue of equity shares.

 

The lender said MUFG Bank will be issued over 471 million shares at ₹840.93 per share, which translates into a 20 per cent stake. Following the transaction, MUFG Bank will have the right to nominate two non-independent directors on Shriram Finance’s board.

 

The proposed minority investment by MUFG Bank is subject to shareholder approval, regulatory clearances and customary closing conditions.

 

“Upon completion of the deal, the Investor (MUFG Bank) would be classified as a public shareholder of the company”, Shriram Finance said.

 

Additionally, the lender said, this investment by MUFG Bank will significantly enhance its capital adequacy, strengthen its balance sheet, and provide long-term growth capital. “It will improve access to low-cost liabilities and potentially strengthen Shriram Finance’s credit ratings while aligning governance and operational practices with global best standards”, the lender said.

 

In a statement, MUFG said it considers Asia as its second home market, and among Asian countries, India is one of the most important markets globally, expected to become the world’s third largest economy by 2030 due to factors such as rapid population growth.

 

“This investment is a strategic step for MUFG to establish a business foundation in India’s MSME and retail markets and capture the country’s growing domestic demand”, the Japanese lender said, adding that the growth capital to Shriram Finance will help drive expansion in segments such as new commercial vehicles and MSME, while enhancing funding capacity and profitability through improved creditworthiness.

 

“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 long standing 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”, the Japansese lender highlighted.

 

Separately, Shriram Finance informed the exchanges that its promoter and promoter group – Shriram Capital, Shriram Ownership Trust, Shriram Value Services and Sanlam Life Insurance – have entered into an agreement with MUFG and Sanlam Emerging Markets (Mauritius) Ltd., whereby as part of the agreement, Shriram Ownership Trust will be subject to non-compete and non-solicitation obligations relating to the lending and credit business of Shriram Finance. In consideration of these obligations, MUFG will pay a one-time, non-recurring non-compete and non-solicitation fee of $200 million (approximately Rs 1,660 crore) to Shriram Ownership Trust, subject to shareholder approval.

 

The Shriram Group, through Shriram Capital and Shriram Value Services, holds a 24.98 per cent stake in Shriram Finance. South Africa–based Sanlam Life Insurance owns a 0.41 per cent stake, taking the total promoter holding in the lender to 25.39 per cent.

 

"This transaction marks a defining moment in our growth journey. The entry of MUFG as a key investor reinforces global confidence in India’s financial services sector and our role as a leader within it. Together, we aim to strengthen our capabilities, drive economic progress, and create meaningful impact across communities, building a future-ready institution anchored in trust and good governance”, said Umesh Revankar, Executive Vice Chairman, Shriram Finance.

 

Hironori Kamezawa, Group CEO, MUFG said, “MUFG and Shriram Finance share a common vision and aligned values for the future. Leveraging our global capabilities, MUFG is committed to supporting Shriram Finance’s growth and contributing to economic development, communities, and society in India”.

 

Shriram Finance is the flagship company of the Shriram Group, and is the second largest retail NBFC with Assets Under Management (AUM) exceeding ₹2.81 trillion. The lender offers a wide range of products including commercial vehicle loans, MSME loans, tractors and farm equipment, gold loans, personal loans, and working capital loans, across its 3,225 branches. It has 78,833 employees, and serves 96.6 lakh customers.

 

Headquartered in Tokyo, MUFG is one of the world’s leading financial groups. The group offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing.

 

Since the opening of the Bombay (now Mumbai) branch of the former Yokohama Specie Bank (a predecessor of The Bank of Tokyo) in 1894, MUFG now covers all of India through six locations, providing full banking services mainly for corporate clients, including deposits, loans, and domestic and foreign exchange transactions. In 2022, MUFG launched the MUFG Ganesha Fund to support the growth of startups, and in 2023, invested in DMI Finance, a non-banking provider of digital financial services in India, to further strengthen the retail digital lending space.

 

Japanese financial groups have made sizeable investment in India’s financial services space this year, starting with Sumitomo Mitsui Banking Corporation (SMBC) of the Sumitomo Mitsui Financial Group (SMFG), acquiring over 24 per cent stake in private sector lender Yes Bank for over $1.6 billion. Additionally, Japan’s Mizuho Financial Group, earlier this week, said it will acquire a controlling over 60 per cent stake in Avendus Capital through its subsidiary, Mizuho Securities, by buying out the stake held by US-based private equity firm KKR via Redpoint Investments in the investment bank, for $516 million.

 

Not just Japanese investors, India’s financial services space has seen a spate of deals this year, including SMBC’s investment in Yes Bank, NBD Emirates $3 billion investment in RBL Bank for 60 per cent stake, International Holding Company (IHC) $1 billion investment for over 42 per cent stake in Sammaan Capital, Warburg Pincus and Abu Dhabi Investment Authority (ADIA) $877 million investment in IDFC FIRST Bank, and Blackstone's Rs 6,196 crore investment for 9.99 per cent stake in Federal Bank.