MUFG deal: Shriram Finance likely to benefit from lower costs of funds

Shriram Finance Ltd (SFL) is expected to see a 15–30 basis points (bps) reduction in its cost of funds following MUFG Bank’s proposed investment of ₹39,618 crore (about $4.4 billion) for a 20 per cent stake in the lender, analysts said.

 

They added that credit spreads between its bonds and bank borrowings could also narrow.

 

Some experts also said that with a significantly strengthened capital base, the lender may consider a move towards becoming a universal bank.

 

“Domestically, it may see a 15-25 bps moderation in cost of funds as it (Shriram Finance) is likely to replace high cost commercial paper (CP) with longer tenure borrowings. The share of bank loans and offshore borrowings is also expected to increase,” said an analyst at a brokerage firm.

 

He said that credit spread between non-convertible debentures and bank loans would compress.

 

“Pre-deal, the cost of funds of Shriram Finance is around 8.8-9 per cent, and post deal, it will be able to save around 30 bps,” the analyst with the brokerage firm added.

 

The lender on Friday said that the fund infusion will significantly enhance its capital adequacy, strengthen balance sheet, and provide long-term growth capital.

 

Additionally, it will improve access to low-cost liabilities and potentially strengthen SFL’s credit ratings while aligning governance and operational practices with global best standards.

 

Currently, Shriram Finance is rated AA+/Stable on its long-term borrowings and A1+ on its short-term instruments by domestic rating agencies — CRISIL, India Ratings, and ICRA — while Fitch Ratings has rated the lender BB+/Stable on its long-term foreign currency issuer rating.

 

Shares of Shriram Finance closed 4.10 per cent higher at ₹905.10 per share. Shares of the company have risen by almost 60 per cent in 2025.

 

Analysts noted that with such a huge capital base, Shriram Finance’s leverage in retail business will be reduced by two times from 3-4 times currently.

 

Moreover, the company may plan to expand its loan book of new commercial vehicle loans, and may even scale up other sectors such as personal loans, gold loans, fintech loans, and SME loans.

 

As a result, competition among non-banking financial companies (NBFCs) across sectors may intensify, said analysts.

 

The company may also turn its focus to low-yielding and low-risk categories from high-risk and high-yielding ones, said the analysts.

 

With such a large capital base, the NBFC may explore the possibility of applying for a universal banking licence, analysts said.

 

“It is difficult for Shriram Finance to get a loan from State Bank of India (SBI). This deal will certainly improve its access to banks’ funding. Also, besides Bajaj Finance, after this infusion, Shriram Finance will be the largest NBFC among private players, with a net worth equivalent to some large banks. SFL may go for a universal banking licence with MUFG on board,” said a senior analyst with a rating agency.