MUFG Bank not keen on raising Shriram Finance stake beyond proposed 20%

MUFG Bank said it will not raise its stake above the proposed 20 per cent in Shriram Finance and has no plans to invest in other Shriram Group entities, even as SFL approved a $4.4 billion deal

Mitsubishi UFJ Financial Group (MUFG) Bank, one of the largest Japanese lenders, on Monday said it had no plans to raise stake beyond the proposed 20 per cent in non-banking financial company (NBFC) Shriram Finance Ltd (SFL). MUFG is also unlikely to invest in any other Shriram group entities. 

Speaking at a press conference, MUFG Group Chief Operating Officer (COO) for global commercial banking Yasushi Itagaki said the lender was “happy with its status as a significant minority stakeholder”. It has “no interest in investing in any other arms of the Shriram Group.” 

“Right now, we have no intention of going above 20 per cent,” Itagaki said, adding that the Japanese lender respects local branding and that Shriram Finance’s name will remain unchanged. 

 

The Board of directors of SFL on Monday approved entering into a definitive agreement with MUFG Bank for an investment of $4.4 billion in exchange for a 20 per cent stake in the NBFC. 

Under the proposed transaction, the promoters will pare 5 per cent stake in Shriram Finance while other public shareholders will dilute 15 per cent stake. This will bring down their stakes to 20.3 per cent and 59.7 per cent, respectively. It will be one of the largest foreign direct investments (FDIs) in India’s financial services sector. 

The proposed investment by MUFG Bank, first announced on Friday, is subject to shareholder approval, regulatory clearances and customary closing conditions.  Upon completion of the investment, MUFG plans to appoint two directors to Shriram Finance’s Board. Itagaki said the Tokyo-based bank would continue to serve its customers in India in wholesale and corporate segments through its branches and not explore the subsidiary model. It has six branches in India, including one in GIFT city. 

Shriram Finance managing director (MD) and chief executive officer (CEO) Parag Sharma said that over the next two years, “We will open 100 new branches a year, which will generate 3,000-5,000 fresh employment.” The NBFC has 78,833 employees, and serves 9.7 million customers at present. 

Umesh Revankar, executive vice-chairman of Shriram Finance, told reporters that MUFG’s investment will also enhance capital adequacy ratio of Shriram Finance to 31 per cent. Shriram Finance said the deal will provide long-term strategic

capital complemented by the endorsement of a marquee global financial institution. It would also augment its leadership in vehicle finance while accelerating growth across other key lending segments. 

Credit rating would improve, resulting in lower cost of funds and deliver global expertise, digital innovation and governance excellence to spearhead the NBFC to its next phase of growth.