Chennai-Based Shriram Finance Shares Hit 52-Week High; Market Cap Surpasses Bank of Baroda and Muthoot Finance, Here’s Why

Shriram Finance Limited (SFL) shares surging to a 52-week high on December 22, 2024, after announcing a massive investment from Japan’s MUFG Bank. The board of directors approved a definitive agreement for MUFG Bank to acquire a 20 per cent stake in the company through a preferential issuance of equity shares. Valued at approximately Rs 39,618 crore (roughly USD 4.4 billion), this transaction stands as the largest-ever foreign direct investment (FDI) in an Indian financial services company. The capital infusion is expected to drastically enhance SFL’s capital adequacy and strengthen its balance sheet, providing the long-term capital necessary to accelerate its growth trajectory as India’s second-largest retail Non-Banking Financial Company (NBFC).

The market's reaction to the deal was immediate and significant, catapulting Shriram Finance’s market capitalisation to Rs 1.76 lakh crore. This surge allowed the Chennai-based lender to surpass the market valuations of major financial institutions, including the public sector giant Bank of Baroda and the gold-loan specialist Muthoot Finance, both of which sit at approximately Rs 1.52 lakh crore each. The investment reflects a profound vote of confidence from MUFG, Japan’s largest lender with USD 2.8 trillion in global assets, in the fundamental strength and future growth potential of India’s lending sector. Beyond the capital, the partnership aims to leverage MUFG’s global expertise and SFL’s extensive domestic distribution network to unlock synergies in technology, innovation and customer engagement.

Under the terms of the agreement, MUFG Bank will be granted specific minority protection rights, including the ability to nominate up to two non-independent directors to the SFL board. These rights are maintained as long as MUFG holds at least a 10 per cent stake on a fully diluted basis. Additionally, the deal involves a USD 200 million one-time non-compete and non-solicit fee payable to the Shriram Ownership Trust, SFL’s major shareholder. This strategic move aligns with MUFG’s broader goal of expanding its footprint in India by targeting small and medium enterprises (SMEs) and individual consumers.

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This collaboration is poised to improve Shriram Finance’s access to low-cost liabilities and potentially elevate its credit ratings by aligning its governance with global best practices. For MUFG, which has a 130-year legacy in India, this USD 4.4 billion commitment dwarfs its previous cumulative investments of USD 1.7 billion in the country. As the transaction moves toward shareholder and regulatory approvals, it signals a new era of global integration for Indian NBFCs, facilitated by recent RBI clarifications that have eased the path for foreign banks to hold equity in non-banking financial entities.

Umesh Revankar, Executive Vice Chairman, Shriram Finance Limited, said, "This transaction marks a defining moment in our growth journey. MUFG is one of the largest financial institutions, with an extensive international network and strong values rooted in substantial growth and financial inclusion. 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. Together, we aim to strengthen our capabilities, drive economic progress and create meaningful impact across communities, building a future-ready institution anchored in trust and good governance.”

Hironori Kamezawa, Group Chief Executive Officer, Mitsubishi UFJ Financial Group, stated, “MUFG is proud to enter into this transaction and become a strategic partner of Shriram Finance, one of India’s most respected financial institutions. MUFG and Shriram Finance share a common vision and aligned values for the future. Leveraging our global capabilities, MUFG is committed to supporting Shriram Finance’s growth and contributing to economic development, communities and society in India.”

About Shriram Finance Limited

Shriram Finance Limited is the flagship company of the Shriram Group, which has a strong presence in Credit, Insurance, Asset Management, Wealth Management, Asset Reconstruction, Stock Broking and Distribution businesses. Shriram Finance is India’s second-largest retail Non-Banking Financial Company (NBFC) with Assets Under Management (AUM) exceeding Rs 2.81 trillion. Established in 1979, SFL serves Small Road Transport Operators and small business owners, leading in organised financing of pre-owned commercial vehicles and two-wheelers. SFL offers a wide range of products, including commercial vehicle loans, MSME loans, tractors & farm equipment, gold loans, personal loans and working capital loans, across its 3,225 branches. It has 78,833 employees and serves 96.6 lakh customers.

About Mitsubishi UFJ Financial Group (MUFG)

Tokyo-based Mitsubishi UFJ Financial Group (MUFG) is a leading global financial institution with over 360 years of history, operating a network of 2,000 locations across more than 50 countries. With 150,000 employees, the Group provides comprehensive services—including banking, securities and asset management—aiming to be the world's most trusted financial partner while trading on the Tokyo, Nagoya and New York stock exchanges.

Disclaimer: The article is for informational purposes only and not investment advice.