Mumbai: Mitsubishi UFG Financial Group (MUFG) is in advanced talks to take a 20% stake in India’s second largest non-banking finance company (NBFC), Shriram Finance, for about Rs 23,200 crore ($2.6 billion), according to people familiar with the matter.
The move underscores the heightened interest of Japanese financial services corporations in Indian banks and shadow lenders.
If a deal takes place, this will be the largest foreign direct investment (FDI) in the Indian NBFC space till date.
Both sides have signed an exclusivity agreement on negotiations, said the people cited. The investment by MUFG will be through a primary issuance via a preferential allotment and will not entail any secondary sale of shares, they said. The Japanese bank is, however, not averse to taking a higher stake in the NBFC, even a controlling interest, over time, the people said. In such an eventuality, it would have to launch an open offer. The transaction is likely at current price levels.
The promoters own 25.39% of Shriram Finance, the bulk of which is held through group holding company Shriram Capital, which has a 17.85% stake. The rest is owned by the 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. Shriram Capital also has a stake in the parent’s insurance joint venture with Sanlam. Shriram Finance is up 5.85% in the year to date, having closed Tuesday at Rs 616.40 on the BSE for a market capitalisation of Rs 1.16 lakh crore. MUFG and Shriram Finance didn’t respond to queries. However, in a late-night stock exchange notice, Shriram Finance said it is not aware of “any potential majority stake sale of equity shares of the company by any shareholder(s) and no such shareholder(s) has approached the company or expressed his/their intention to sell any shares held by him/them in the company.”
Shriram Finance had total assets under management (AUM) of Rs 2.72 lakh crore at the end of the June quarter, up 17% from the year earlier. In the private sector, that’s second only to Bajaj Finance with AUM of Rs 4.41 lakh crore. It has close to 10 million customers across vehicle finance, MSME loans, personal loans and gold loans.
This is MUFG’s second try at getting a large holding in a fast-growing NBFC in India after unsuccessfully seeking a stake in HDB Financial Services for $2 billion. HDB Financial is the NBFC arm of HDFC Bank.
It had also evaluated stakes in Yes Bank. SMBC, another Japanese banking giant, bought into that Indian lender earlier this year.
MUFG, which has owned a fifth of Wall Street investment bank Morgan Stanley since 2008, has been backing another Indian NBFC, DMI Finance, since April 2023.
Sluggish growth in Japan has pushed some of its biggest lenders and financial services groups to seek inorganic growth opportunities across Asia.
Commercial vehicles account for the biggest chunk of the Shriram Finance portfolio at Rs 1.23 lakh crore or 45% of the loan book, followed by passenger vehicles at Rs 56,634 crore and 22% and MSMEs at Rs 38,824 crore and 14%. It had 3,225 branches at the end of June, most of them in semi-urban and rural areas.
Shriram Finance on Friday announced it had invested an additional Rs 300.05 crore in wholly-owned subsidiary Shriram Overseas as part of a phased capital infusion approved by the board in May 2025.
Shriram Finance reported net profit of Rs 2,159.4 crore in the June quarter, up 6.3% from the year before. Net interest income (NII) rose 10.3% to Rs 5,773 crore. Operating profit was Rs 4,192 crore, below the Street expectation of Rs 4,422 crore.
For MUFG, which has invested heavily in corporate banking, Shriram’s portfolio of commercial vehicle, two-wheeler and gold loans as well as loans against property gives it entry into the lucrative retail lending market in India. The company’s asset quality improved to 2.57% of net non-performing assets (NPAs) from 2.71% a year earlier.
Credit rating agency India Ratings expects growth of NBFC assets under management to moderate to 18.5% in FY26 from 25% last year after bank funding to the sector reduced as the Reserve Bank of India normalised risk weights. The rating agency has maintained a neutral sector outlook for NBFCs in FY26 with funding likely dependent on asset quality trends, especially in the unsecured segment.
Higher-rated NBFCs with better asset quality and access to diversified funding will be better placed because of their wide network and lower cost of funds. In recent years, large private NBFCs have significantly increased their market share relative to smaller entities. At the end of September 2024, the loan market share of 17 major NBFCs tracked by Fitch Ratings had risen to 38%, up from 30% in March 2022. These prominent NBFCs achieved a CAGR of 20% in loans from March 2022 to September 2024, outpacing the overall NBFC sector’s growth of 9%.
