Japan's MUFG in Advanced Talks for $2.6 Billion Stake in Shriram Finance
Mitsubishi UFJ Financial Group (MUFG), Japan's largest financial institution, is in advanced negotiations to acquire a 20% stake in Shriram Finance for approximately ₹23,200 crore ($2.6 billion), according to sources familiar with the matter. If completed, this transaction would represent the largest foreign direct investment in India's non-banking financial company sector to date.
The potential investment underscores growing Japanese financial services interest in India's dynamic lending market and could provide Shriram Finance, the country's second-largest NBFC, with substantial capital and strategic partnership benefits for future expansion.
Deal Structure and Strategic Framework
The proposed transaction follows a carefully structured framework designed to maximize benefits for both parties. Both organizations have signed an exclusivity agreement on negotiations, providing MUFG with a dedicated window to finalize terms without competing bidders.
The investment will be executed through a primary issuance via preferential allotment, meaning new shares will be created rather than existing shareholders selling their stakes. This structure ensures that capital flows directly to Shriram Finance for business expansion and strategic initiatives, rather than providing exit opportunities for current investors.
Sources indicate that MUFG remains open to acquiring a higher stake, potentially even a controlling interest, over time. In such a scenario, regulatory requirements would necessitate launching an open offer to minority shareholders, providing them with exit opportunities at fair valuations.
Shriram Finance's Market Position and Valuation
Shriram Finance has demonstrated strong market performance, with shares gaining 5.85% year-to-date, closing Tuesday at ₹616.40 on the BSE. This performance translates to a robust market capitalization of ₹1.16 lakh crore, reflecting investor confidence in the company's business model and growth trajectory.
The transaction is expected to occur at current market price levels, providing MUFG with immediate exposure to India's retail lending sector at valuations that reflect the company's established market position and proven operational capabilities.
In a late-night stock exchange notice, Shriram Finance clarified it was unaware of any potential majority stake sale by shareholders and that no shareholder had approached the company expressing intention to divest holdings, addressing market speculation about the transaction's structure.
Business Scale and Operational Footprint
Shriram Finance operates at impressive scale, with total assets under management (AUM) of ₹2.72 lakh crore at the end of June quarter, representing 17% year-over-year growth. In the private NBFC sector, this positions the company second only to Bajaj Finance, which commands AUM of ₹4.41 lakh crore.
The company serves close to 10 million customers across diverse lending categories including vehicle finance, MSME loans, personal loans, and gold loans. This diversified portfolio provides stability and multiple growth avenues across India's expanding consumer credit market.
Commercial vehicles represent the largest portfolio segment at ₹1.23 lakh crore or 45% of the loan book, followed by passenger vehicles at ₹56,634 crore (22%) and MSMEs at ₹38,824 crore (14%). This portfolio composition reflects the company's traditional strength in commercial vehicle financing while demonstrating successful diversification into other lending segments.
Geographic Reach and Distribution Network
Shriram Finance maintains an extensive distribution network with 3,225 branches at the end of June, predominantly located in semi-urban and rural areas. This geographic focus positions the company to capitalize on India's ongoing rural credit expansion and financial inclusion initiatives.
MUFG's India Strategy and Previous Attempts
This represents MUFG's second attempt to secure a significant holding in a fast-growing Indian NBFC after unsuccessful negotiations for a $2 billion stake in HDB Financial Services, the NBFC arm of HDFC Bank. The Japanese financial giant has also evaluated stakes in Yes Bank, demonstrating persistent interest in India's financial services sector.
MUFG, which has held a 20% stake in Wall Street investment bank Morgan Stanley since 2008, has been backing Indian NBFC DMI Finance since April 2023. This track record demonstrates the institution's commitment to long-term investments in high-growth financial services markets.
The pursuit of Indian investments reflects sluggish domestic growth in Japan, pushing major Japanese financial institutions to seek inorganic growth opportunities across Asia's dynamic markets.
Strategic Rationale and Market Entry Benefits
For MUFG, which has invested heavily in corporate banking, Shriram Finance's portfolio offers strategic entry into India's lucrative retail lending market. The company's expertise in commercial vehicle financing, two-wheeler loans, gold-backed lending, and loans against property provides MUFG with diversified exposure to multiple retail credit segments.
Shriram Finance's improving asset quality adds to its attractiveness, with net non-performing assets declining to 2.57% from 2.71% year earlier, demonstrating effective credit management and risk controls.
Financial Performance and Recent Results
Shriram Finance reported net profit of ₹2,159.4 crore in the June quarter, up 6.3% year-over-year, demonstrating consistent profitability despite competitive market conditions. Net interest income rose 10.3% to ₹5,773 crore, reflecting healthy lending growth and margin management.
Operating profit reached ₹4,192 crore, slightly below market expectations of ₹4,422 crore, suggesting some pressure on operational efficiency that management will need to address going forward.
Recently, the company announced an additional ₹300.05 crore investment in wholly-owned subsidiary Shriram Overseas as part of phased capital infusion approved by the board in May 2025, indicating continued investment in international expansion capabilities.
Shareholding Structure and Promoter Stake
The promoters currently own 25.39% of Shriram Finance, with the majority held through group holding company Shriram Capital (17.85% stake). The remaining equity is distributed among public and institutional shareholders, including the Government of Singapore (5.41%) and Monetary Authority of Singapore (1.2%).
Shriram Capital is owned by Shriram Ownership Trust and Sanlam of South Africa, with the holding company also maintaining stakes in the parent's insurance joint venture with Sanlam.
Sector Outlook and Competitive Dynamics
Credit rating agency projections suggest NBFC asset growth moderating to 18.5% in FY26 from 25% in the previous year, following reduced bank funding as the Reserve Bank of India normalized risk weights. This moderation creates opportunities for well-capitalized NBFCs to gain market share from smaller, funding-constrained competitors.
Higher-rated NBFCs with superior asset quality and diversified funding access are positioned to benefit from their extensive networks and lower cost of funds. Recent data shows that 17 major NBFCs tracked by rating agencies increased their loan market share to 38% by September 2024, up from 30% in March 2022, achieving 20% CAGR while the overall sector grew at just 9%.
This market consolidation trend favors established players like Shriram Finance, particularly when backed by global financial institutions like MUFG bringing capital, technology, and operational expertise.
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