Uday Kotak lauds MUFG stake buy in Shriram Finance but flags big question on next move

Veteran banker Uday Kotak on Thursday welcomed MUFG Bank’s move to buy a 20% stake in Shriram Finance but raised a question whether the firm would continue as a non-banking financial company (NBFC) or apply as a bank. He noted that the current NBFC structure offers significant growth potential without the regulatory constraints faced by banks.

“Happy to see big-ticket foreign investment in Shriram Finance by Mitsubishi UFJ, a reputed global bank and financial institution. Will Shriram continue as an NBFC, which has huge potential without the regulatory constraints of a banking company, or apply to become a bank in due course?” Kotak said in a tweet on Friday.

Shriram Finance’s board of directors, 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 issuance of equity shares. This investment will result in MUFG Bank acquiring a 20% stake on a fully diluted basis.

The company called it a landmark transaction underscoring 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 industry on account of being the largest FDI in a financial services company in India.The company said that the transaction will reinforcing confidence in India’s lending and financial services sector fundamentals and 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 clearances and customary closing conditions.

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

Shares of Shriram Finance today jumped over 4% to end at Rs 905.10 on the NSE and have given stellar returns of 54% in the past 12 months.

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