Mitsubishi UFJ Financial Group (MUFG) is set to make a significant investment of ₹39,618 crore ($4.4 billion) for a 20% stake in Shriram Finance Ltd (SFL) through a preferential issuance of equity shares. This transaction stands as one of the largest cross-border deals of the year, further solidifying the growing economic ties between India and Japan, particularly within the financial services sector.

This substantial fund infusion is expected to significantly enhance SFL’s capital adequacy, strengthen its balance sheet, and provide essential long-term growth capital. Shriram Finance anticipates that this collaboration will unlock new synergies in technology, innovation, and customer engagement, fostering sustainable growth while also improving access to low-cost liabilities. The partnership is designed to combine SFL’s established domestic franchise and extensive distribution network with MUFG Bank’s global expertise and financial strength.

The announcement had a positive impact on SFL’s market performance, with its shares climbing to a 52-week high of ₹914.10 on Friday, closing at ₹901.75 with a 3.74% gain on the BSE. Year-to-date, SFL shares have risen by 50%. The purchase values the company at ₹1.98 trillion, representing a premium of approximately 17% over its current market capitalization.

For the Japanese financial giant, MUFG, this investment represents a strategic move to establish a robust foundation in India’s burgeoning micro, small and medium enterprises (MSME) and retail markets, enabling it to capitalize on the country's growing domestic demand. MUFG stated that by providing growth capital to Shriram Finance, it aims to drive expansion in key segments such as new commercial vehicles and MSME, simultaneously enhancing funding capacity and profitability through improved creditworthiness. With a legacy spanning over 130 years in India, this deal with SFL marks MUFG’s largest investment in the country to date, adding to its previous investments of around $1.7 billion.

This transaction adds considerable momentum to the financial services activity within the Indo-Japan corridor, following other notable deals this year, including Mizuho’s majority investment in Avendus and Sumitomo Mitsui Banking Corp’s acquisition of a stake in Yes Bank. Umesh Revankar, executive vice chairman of SFL, highlighted that MUFG’s entry as a key investor underscores global confidence in India’s financial services sector. Raghav Gupta, joint CEO of IIFL Capital, further affirmed that the MUFG–Shriram transaction is a strong endorsement of India’s financial services growth story and reflects increasing strategic interest from Japanese institutions. He emphasized that this is a long-term partnership providing balance-sheet strength, global risk expertise, and governance depth, with the premium justified by the scarcity value of scaled, profitable NBFC platforms. Gupta anticipates more such large, strategic India-Japan deals, particularly in lending, wealth, and asset management, which will set new valuation benchmarks and encourage other well-capitalized players to proactively raise growth capital.

Shriram Finance is recognized as India’s second-largest non-banking finance company, managing assets of approximately ₹2.81 trillion as of September, and operating more than 3,000 branches across the country. The company was founded in 1979 as Shriram Transport Finance Company Ltd (STFC) by R. Thyagarajan, alongside AVS Raja and T. Jayaraman, and listed about five years later. Over the decades, it attracted early investments from Telco (now Tata Motors) and Ashok Leyland.

The company has undergone several strategic shifts throughout its almost five-decade history. In the mid-2000s, STFC merged with Shriram Industrial Holdings Limited (SIL) and Shriram Overseas Finance Limited (SOFL), attracting private equity investments from firms like ChrysCapital and TPG. Approximately three years ago, Shriram City Union Finance and Shriram Capital were merged into Shriram Transport Finance Company, leading to its renaming as Shriram Finance. More recently, in 2024, the entity sold an 84.4% stake in Shriram Housing Finance to a Warburg Pincus affiliate for ₹3,929 crore. The promoters hold 25.39% of SFL, primarily through the group holding company Shriram Capital (17.85% stake), while the remaining shares are held by public and institutional investors, including the Government of Singapore (5.41%) and the Monetary Authority of Singapore (1.2%). Shriram Capital itself is owned by the Shriram Ownership Trust and South Africa’s Sanlam, and also holds a stake in the group’s insurance joint venture with Sanlam.

Amid slower growth in vehicle finance, SFL has been reworking its lending strategy to focus on emerging segments such as renewable energy, merchant credit, fisheries, and supply chain finance. It has also successfully ventured into merchant finance through partnerships with platforms like Paytm and PhonePe, disbursing ₹100 crore and ₹50 crore monthly, respectively, and also finances merchants linked to Walmart’s Best Price.

For the fiscal year 2025 (FY25), SFL reported a total income of ₹41,859.47 crore, an increase from ₹34,997.61 crore a year earlier. Net profit for the same period rose to ₹9,761 crore from ₹7,190.48 crore in FY24. KPMG and JPMorgan served as financial advisors to MUFG Bank, while Wadia Ghandy & Co. acted as legal advisor for SFL in this landmark transaction.