Mumbai: Japanese finance major Mitsubishi UFJ Financial Group (MUFG) is reportedly looking to acquire a minority 20% stake in Sriram Finance with an investment of about $3.2 billion. This minority stake is aimed to become one of the largest foreign investments in India’s non-banking financial sector space, which commands about 20% of the total domestic consumer credit market.
This development comes six months after Sumitomo Mitsui Banking Corporation (SMBC), another Japanese financial giant, started taking over Mumbai-based Yes Bank from SBI and other domestic investors. MUFG was earlier looking to buy out the bank, but lost out to SMBC.
If things go according to plan, MUFG could get two board seats in Sriram Finance. The lender is currently undergoing a leadership transformation as the company’s long-serving MD YS Chakravarthi, is retiring to make way for Parag Sharma as the company’s top executive. MUFG currently has a small presence in India, but mostly for investment credit. Sriram Finance has a strong presence in Tier 2 and 3 cities, with a large and growing loan book in retail and SME Financing. It is currently one of the leading NBFC’s in India, particularly in commercial vehicles, gold loans, and personal loans.
Despite its success, the company is heavily exposed to automotive, real estate and associated industries, especially in rural and semi-urban areas. The company also has a negative cash flow for the last three years, and MUFG will be expected to help the company turn cash positive while helping it manage its big mountain of debt of about ₹2.34 lakh crores.
