Japan’s Mitsubishi UFJ Financial Group has announced a landmark acquisition that will reshape India’s financial services landscape through unprecedented foreign investment. The $4.4 billion transaction represents the largest cross-border investment ever recorded in India’s financial sector, surpassing previous major deals and demonstrating growing international confidence in the country’s lending ecosystem.
Japanese banking giant makes a historic Indian investment
The largest commitment made by MUFG in the Indian market was the acquisition of a 20% stake in Shriram Finance using the preferential allotment method. This acquisition also surpasses the previous investment made by the company by an amount of $1.7 billion. This acquisition involves the allotment of 47.11 million fully paid equity shares at the rate of Rs 840.93. This will generate about Rs 39,618 crores.
This deal gives MUFG a chance to appoint two nominees as directors to the Board at Shriram Finance, aside from minority rights. The overall financial deals in the Indian financial market have recorded almost $15 billion in the opening half of the ongoing year, doubling the number of deals that comprised $6.5 billion in 2024.
The expansion plan shall focus on the SME and personal loan business sectors
The injection of funds is a part of a broader plan of MUFG to aggressively develop their lending business in the Indian market and hence extend their area of lending business to SME as well as retail customers. This is evident from the fact that there is an awareness of MUFG about the growing Indian economy and enormous opportunities in retail financial services due to the growing Indian financial infrastructure.
Record-breaking transaction includes additional financial commitments
The allotment of primary shares is pending the approval of the shareholders, usual closing conditions, and is expected to strengthen the capital adequacy ratio, as well as the balance sheet, of Shriram Finance. A one-time non-compete fee of $200 million has also been required to be paid by MUFG to Shriram Ownership Trust, as the major shareholder of SFL.
It is expected that this acquisition will help reduce the cost of funds as well as improve the return on assets of Shriram by as much as 50-60 basis points. This will make the firm even more valuable to its shareholders. Shriram Finance is one of the biggest players in the retail non-banking financial company industry in India, with 3,225 branches. It provides credit facilities for both commercial and passenger vehicles.
The legal system supports foreign investment expansion
Foreign investments for non-banking finance companies are allowed for a maximum of 100%, unlike banks, where foreign institutional investments stand at a maximum of 15% except exemptions allowed by the Reserve Bank of India, and notices issued by the regulators, quite recently, have removed impediments for investments by banks for the entry of MUFG into the finance sector in India.
The regulatory environment is very conducive to collaborations on an international level, simultaneously ensuring the stability and growth exhibited by the financial system. The financial institution manages an asset base that is worth 2.8 trillion rupees, along with operations in assorted customer segments in tier-2, tier-3 cities in India.
“There is always a possible chance that we might increase our stake beyond 50 percent. There are rules within the regulations that permit acquisition of more than 50 percent,” replied Masashige Nakazono, executive officer of MUFG Bank and division head of global commercial banking planning.
This acquisition sets the tone for foreign investments in the financial services sector in the Indian market and indicates the bank’s optimism regarding the growth potential available in the Indian market. This alliance will help Shriram Finance enter the market aggressively and provide the firm with better access to finances, apart from providing MUFG with access to the Indian loan market.
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