The MUFG–Shriram Finance Deal Explained
2025 has quietly emerged as a defining year for foreign capital in India’s financial sector. One after another, marquee deals have hit Dalal Street—Emirates NBD’s investment in RBL Bank, Warburg Pincus backing IDFC, and Sumitomo Mitsui Banking Corporation’s support for Yes Bank.
Each transaction has raised the bar. What began as selective capital infusions has now turned into a full-scale race by global financial giants to gain a foothold in India.
The latest—and largest—deal comes from Mitsubishi UFJ Financial Group (MUFG). The Japanese banking heavyweight has announced a ₹39,600 crore investment to acquire a 20% stake in Shriram Finance, valuing the NBFC at nearly ₹2 lakh crore. It is the biggest finance-sector transaction of 2025 so far.
At first glance, it may look like just another foreign investment headline. But this deal stands apart.
MUFG isn’t rescuing a stressed lender or quietly entering through a backdoor. Instead, it has chosen to partner with a well-scaled, profitable, and dominant NBFC—one that already sits at the heart of India’s real-economy credit engine.
So why did MUFG choose this route, and why now?
Why NBFCs Are the Preferred Gateway
Non-banking financial companies play a critical role in India’s financial system. While they perform many banking functions—especially lending—they operate without a full banking licence.
Shriram Finance, for instance, focuses on commercial vehicle loans, MSME credit, gold loans, two-wheelers, and passenger vehicles—segments that directly fuel economic activity beyond India’s metros.
For foreign investors, NBFCs offer a key advantage over banks: flexibility.
India’s banking sector is tightly regulated, with strict promoter caps, long approval timelines, and extensive scrutiny before ownership changes are allowed. NBFCs, by contrast, provide more room for strategic investments, easier board representation, and faster execution.
That makes them an attractive entry point for global banks seeking exposure to India’s credit growth.
Why Shriram Finance Stands Out
Shriram Finance isn’t just another large NBFC riding a favourable cycle.
The company operates over 3,200 branches, serves more than 9 million customers, and manages assets exceeding ₹2.6 lakh crore. In FY25, it reported profits of ₹8,272 crore, making it India’s second-largest NBFC by scale and profitability.
More importantly, its growth isn’t driven by speculative lending. Its core businesses—commercial and passenger vehicle financing—are tied directly to India’s economic activity and generate repeat borrowing cycles.
This is not a company seeking survival capital. It’s a company looking to scale to the next level.
The Structural Gap at the Top
Despite its size, Shriram Finance still trails the market leader—Bajaj Finance—by a wide margin.
Bajaj Finance commands a valuation of over ₹6 lakh crore and enjoys a critical advantage that most NBFCs lack: a large and growing deposit base, with annual deposits nearing ₹71,400 crore. That deposit engine provides lower-cost capital, enabling faster growth and higher profitability.
For Shriram Finance, bridging this gap through organic growth alone is challenging. Demand isn’t the issue—access to stable, low-cost capital is.
A universal banking licence would be the long-term solution, as it allows access to savings and current account deposits. But in India, banking licences are rare, tightly regulated, and granted only after years of regulatory comfort and proven governance.
Which means the licence may be the destination—but not an immediate lever.
Why MUFG Needs India
This deal isn’t driven only by India’s growth story. It is equally shaped by conditions in Japan.
Japanese banks operate in a low-growth environment marked by ultra-low interest rates, an ageing population, and limited domestic credit demand. Even after Japan’s first rate hike in three decades, interest rates remain around 0.75%.
The deeper challenge is demographic. With fewer young borrowers, loan growth opportunities at home are limited. Japanese banks aren’t short of capital—they’re short of places to deploy it profitably.
India, with its young population, expanding middle class, and rising credit penetration, offers exactly what Japan lacks.
A Strategic Match, Not Just a Deal
Viewed through this lens, the MUFG–Shriram Finance partnership looks less like a transaction and more like a structural alignment.
MUFG gains immediate exposure to India’s fastest-growing credit segments without building a retail banking presence from scratch. The deal also includes two board seats, ensuring long-term strategic influence rather than passive ownership.
Shriram Finance, in return, gains a global partner with deep capital, international credibility, and the potential to reduce funding costs over time—advantages that matter when competing with much larger peers.
This partnership doesn’t guarantee a banking licence. The RBI remains cautious, prioritising asset quality and governance over rapid expansion.
But it does provide something nearly as valuable: credibility, patience, and strategic optionality.
And in Indian finance, those often matter just as much as capital itself.
