The Indian non-bank lender, Shriram Finance Ltd, announced on Friday that Japan’s Mitsubishi UFJ Financial Group will purchase a 20 percent stake in Shriram Finance Ltd. for $4.4 billion. This is the largest ever cross-border financial investment in India.
This transaction coincides with a rapid increase in the amount of foreign investments into India’s financial and banking services sector.
According to Dealogic, the value of deals in this sector has reached $15 billion in just the first half of the year. This is more than twice the $6.5billion recorded in 2024.
The MUFG Investment follows the Emirates NBD Bank’s $3 billion acquisition of a 60% stake of RBL Bank, in November. This was the largest foreign investment at that time.
In a statement, Umesh revankar, executive Vice Chairman of SFL said: “MUFG’s entry as a major investor strengthens the global confidence in India’s financial services industry.”
Following the announcement, shares of Shriram Finance rose more than 4,3% and reached a new record of 906,85 rupees.
The stock price has risen by 46% since early October when the first reports about talks with MUFG were published.
Shriram Finance stated that the transaction would improve their capital adequacy and balance sheet, as well as provide them with long-term capital for growth.
This partnership will also help to lower the cost of funding for the company and improve its credit rating.
Japan Banks Step Up Their Overseas Push
Megabanks in Japan are increasingly looking for growth abroad as they struggle with a weak domestic market, low margins, and demographic decline.
India is a popular destination for tourists, thanks to its rising incomes and credit growth, as well as a formalising economy.
Sumitomo Mitsui Banking Corporation, a division of Sumitomo Mitsui Financial Group (SMFG), acquired a 24,2% stake in Yes Bank earlier this year. The investment began with a $1.6billion for 20%.
MUFG’s transaction with Shriram Finance has now exceeded that of the previous deal in terms of scale.
Shriram Finance stated that the investment was subject to approval by regulatory authorities. Shriram Group owns 24.9% of the non-bank lender.
Non-compete agreements and governance rights
According to the agreement, MUFG receives certain rights of minority protection, such as the right to nominate up to two directors who are not independent to Shriram Finance.
The company will receive pre-emption rights in order to retain its shareholding proportion.
The company stated that these rights would expire if MUFG’s share price fell below 10% when fully diluted.
MUFG also agreed to pay a $200 million non-compete fee and non-solicitation fee, which will be paid once only by Shriram Ownership Trust. This trust is the largest shareholder of the lender.
This payment will be subject to the approval of Shriram Finance shareholders.
What investors need to know about stock reaction
This stock is a constituent of the Nifty 50 and has risen by about 50% in just 2025. It’s its best performance for a calendar year since 2017.
The price of the transaction was a key element in the rally.
Shriram Finance is going to issue shares at Rs840.9 each, which represents a slight discount from the closing price on Thursday.
This compares favorably to other foreign investments made in Indian banks, such as Emirates NBD’s purchase of RBL Bank at 6.5% off, IDFC First Bank’s deal for around 5% and Sammaan Capital’s at an even steeper discount.
The implied value also appears to be encouraging for investors.
Shriram Finance is valued at 1.9x its forward-estimated price-to book ratio, an attractive level compared to other peers, such as Cholamandalam Investment and Finance which trades for more than 4 times the value of the books.
Market reaction was not just a reflection of the valuation but also the expectation that Shriram Finance would benefit from the infusion and improve its balance sheet.
Analysts believe the partnership between MUFG and MUFG can help reduce funding costs by gaining access to lower-cost liabilities. It could also improve credit metrics as well as pave the path for a possible credit rating upgrade.
This additional capital will also be used to expand in key segments, such as MSME and commercial vehicles.
“Shriram Finance is trading at 3 times the book value and adding this amount – around Rs 39000 crores – their net worth would move to about Rs 90-92,000 billions. This makes them more capitalised than many banks. Even the largest private banks, except for the four top ones, are not capitalised at this level,” N Jayakumar from Prime Securities said to CNBC-TV18.
India’s appeal and Japan’s limitations
India has many growth factors that Japan is increasingly lacking, such as expanding small business lending and retail lending, infrastructure investment and low credit penetration.
The demand for consumer loans, vehicle financing, and MSME funding continues to grow at an accelerated pace.
Japan’s banking industry, on the other hand, is highly mature, with a high concentration of its three major banks — MUFG SMBC and Mizuho.
Long-term growth is capped by a declining population, an aging society and low household borrowing.
The structural problems facing banks have not been materially altered by the Bank of Japan’s interest rate hikes last year.
The recent deals between MUFG and Daiwa Securities show how rapidly Japanese investment in India has increased, as well as the growing confidence that Japan’s financial sector enjoys.
As new information becomes available, this post MUFG acquires 20% of Shriram Finance in India’s largest financial sector FDI could be updated.
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