Uday Kotak praises purchase of MUFG stake in Shriram Finance, but flags big questions over next step

Veteran banker Uday Kotak on Thursday welcomed MUFG Bank’s move to buy a 20% stake in Shriram Finance, but questioned whether the company would continue as a non-banking financial company (NBFC) or file as a bank. He noted that the current NBFC structure offers significant growth potential without the regulatory constraints faced by banks. “Happy to see major foreign investment in Shriram Finance by Mitsubishi UFJ, a renowned global bank and financial institution. Will Shriram continue as an NBFC, which has huge potential without the regulatory constraints of a banking company, or will it apply to become a bank in due course?” Kotak said in a tweet on Friday.

The board of directors of Shriram Finance, at a meeting held today, approved entering into definitive agreements with MUFG Bank for an investment of Rs 39,618 crore ($4.4 billion) in SFL through a preferential issue of shares. This investment will result in MUFG Bank acquiring a 20% stake on a fully diluted basis.The company termed it a landmark transaction that underlines SFL’s status as India’s second-largest retail NBFC in terms of assets under management.

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The transaction represents a significant milestone for the Indian financial services sector as it represents the largest foreign direct investment in a financial services company in India.

The company said the transaction will strengthen confidence in the fundamentals of the Indian lending and financial services sector and its future growth potential, while strengthening SFL’s capital base and accelerating its growth trajectory. The proposed minority investment by MUFG Bank is subject to shareholder approval, regulatory approval and customary closing conditions.

KPMG India Corporate Finance (Chief Financial Advisor), JP Morgan (Financial Advisor), AZB & Partners (Legal Advisor), Nishimura & Asahi (Gaikokuho Kyodo Jigyo) (Legal Advisor) served as transaction advisors to MUFG, while Wadia Ghandy & Co. were legal advisors for Shriram Finance.

Shares of Shriram Finance rose over 4% today to close at Rs 905.10 on the NSE and have delivered stellar returns of 54% in the last 12 months.

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