Leading non-banking financial company (NBFC) Shriram Finance on Friday said Japan-based MUFG Bank would invest Rs 39,618 crore, or $4.4 billion, to acquire a 20 per cent stake on a fully diluted basis through a preferential issue of equity shares.
Illustration: Uttam Ghosh
This will be the largest foreign direct investment (FDI) ever in India’s financial services sector, which has seen a spate of large deals this year.
The transaction will surpass Emirates NBD’s October deal to acquire a 60 per cent stake in RBL Bank for $3 billion.
In May, Sumitomo Mitsui Banking Corporation (SMBC) signed a deal to buy a 20 per cent stake in Yes Bank for $1.6 billion.
Shriram Finance is the flagship company of the Shriram group and the country’s second-largest retail NBFC, with assets under management (AUM) exceeding Rs 2.81 trillion.
Under the deal, MUFG Bank, a consolidated subsidiary of Mitsubishi UFJ Financial Group (MUFG), will be issued over 471 million shares at Rs 840.93 apiece, translating into a 20 per cent stake.
Following completion, MUFG Bank will have the right to nominate two non-independent directors to Shriram Finance’s board.
The proposed minority investment is subject to shareholder approval, regulatory clearances, and customary closing conditions.
“Upon completion of the deal, MUFG Bank would be classified as a public shareholder of the company,” Shriram Finance said.
The lender also said the MUFG Bank investment would boost its capital adequacy, strengthen 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 Asia is its second home market, with India among its most important global markets and expected to become the world’s third-largest economy by 2030.
The investment, it said, was a strategic step to establish a business foundation in India’s micros, small and medium enterprises (MSME) and retail segments and tap into growing domestic demand.
“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 longstanding 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 Japanese lender highlighted.
Separately, Shriram Finance informed stock exchanges that its promoter and promoter group — Shriram Capital, Shriram Ownership Trust, Shriram Value Services and Sanlam Life Insurance — had entered into an agreement with MUFG and Sanlam Emerging Markets (Mauritius).
As part of this agreement, Shriram Ownership Trust will undertake non-compete and non-solicitation obligations related to Shriram Finance’s lending and credit business. In consideration, MUFG will pay a one-time, non-recurring fee of $200 million (about 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. Sanlam Life Insurance owns 0.41 per cent, taking the total promoter holding to 25.39 per cent.
“This transaction marks a defining moment in our growth journey,” said Umesh Revankar, executive vice-chairman, Shriram Finance.
“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.”
Hironori Kamezawa, group chief executive officer, MUFG, said the partnership reflected shared values and a common vision.
“Leveraging our global capabilities, MUFG is committed to supporting Shriram Finance’s growth and contributing to economic development, communities, and society in India,” said Kamezawa.
Shriram Finance offers products including commercial vehicle loans, MSME loans, tractor and farm equipment loans, gold loans, personal loans and working capital finance through 3,225 branches.
It employs 78,833 people and serves 9.6 million customers.
Headquartered in Tokyo, MUFG is one of the world’s leading financial groups, offering services across commercial and trust banking, securities, consumer finance, asset management and leasing.
The group has operated in India since 1894 and currently serves clients from six locations.
In recent years, MUFG has expanded its India presence through investments such as the MUFG Ganesha Fund, DMI Finance, and now Shriram Finance.
Japanese financial institutions have emerged as significant investors in India’s financial services sector this year, including SMBC’s investment in Yes Bank and Mizuho Financial Group’s agreement to acquire a controlling stake in Avendus Capital for $516 million.
