Shriram Finance Limited saw its shares rise by 2.2% on Tuesday, December 30, on the Bombay Stock Exchange (BSE), hitting an intraday high of ₹976.35. This surge came after CARE Ratings upgraded the company's long-term debt instruments to the highest possible "CARE AAA; Stable" rating. The credit rating upgrade closely followed a major announcement: Japan's MUFG Bank agreed to acquire a 20% stake in Shriram Finance for approximately $4.4 billion (₹39,618 crore). Thi^{[1][2][3][4][5][6]}s landmark investment and the subsequent rating upgrade signal strong confidence in the Indian non-banking financial company (NBFC). ## MUFG's Landmark $4.4 Billion Investment Japan's MUFG Bank, a subsidiary of Mitsubishi UFJ Financial Group, is set to invest ₹39,618 crore, or about $4.4 billion, to acquire a 20% stake in Shriram Finance. This ^{[2][9][3][5][10]}significant transaction is being executed through a preferential issue of 47.11 crore new equity shares to MUFG Bank at ₹840.93 per unit. This in^[2]vestment marks MUFG's largest commitment in India to date, surpassing its previous cumulative investments of $1.7 billion. It also^[1][4][5] stands as one of the most substantial foreign direct investments in India's financial services sector. Upon c^[2][3][11]ompletion of the deal, which awaits shareholder and regulatory approvals, MUFG will become a public shareholder and gain the right to appoint two directors to Shriram Finance's board. MUFG of^[2][9][12]ficials have stated their satisfaction with being a significant minority shareholder, intending to cap their investment at 20% for now without seeking management control. This st^[13]rategic alliance aims to accelerate Shriram Finance's growth through various partnerships. ### CA^[9]RE Rating Upgrade and Its Financial Impact CARE Ratings elevated Shriram Finance's non-convertible debentures and subordinate debt, totaling ₹2,500 crore, to "CARE AAA; Stable" from the prior "CARE AA+; Stable" rating. The ratin^{[1][4][14][8][5][15]}g agency also reaffirmed its top short-term rating of "CARE A1+" for the company's commercial paper program, which amounts to ₹7,500 crore. This upgrad^{[1][3][4][14][8][5][15]}e reflects CARE Ratings' positive assessment of Shriram Finance's operational and financial performance during the current fiscal year and the first half of the next financial year. The "CARE ^{[1][4][14][8][5][15][10]}AAA" rating signifies the highest level of creditworthiness and stability, suggesting a very low probability of default. Shriram Fin^[14]ance's management expects this upgrade to significantly lower the company's cost of funds. The company^[1] projects a reduction of nearly 100 basis points (1%) in its cost of funds over the next 1.5 to 2 years from the current 8.70%. Specificall^[1][8]y, Umesh Revankar, Executive Vice-Chairman of Shriram Finance, told Business Standard that fresh non-convertible debenture (NCD) issuances could see rates fall 30-40 basis points, potentially dropping below 8%. This reduct^[10]ion in borrowing costs is expected to make the company more competitive in the lending market and attract a wider range of institutional investors. ### Market^[14] Reaction and Positive Outlook Shriram Finance shares responded positively to the news, closing 2.5% higher at ₹980.20 on Tuesday. The stock has^[3][10] shown strong performance recently, rallying 13% over the past month and an impressive 65% since the beginning of 2025, outperforming the benchmark BSE Sensex. The capital i^[3][4][10]nfusion from MUFG is projected to substantially enhance Shriram Finance's capital base. The company's Capital to Risk-Weighted Assets Ratio (CRAR) is expected to surge from 20.68% as of September 2025 to approximately 31%. Tier-1 capita^[2]l could rise sharply to around 33% from 20%, with leverage reducing to nearly 3x. This signific^[8][12]ant boost provides a strong buffer and ample capacity for future lending growth, particularly in segments like new commercial vehicles and MSMEs. Brokerage fi^[2][5][11]rms have largely reacted with optimism. Out of 38 analysts covering Shriram Finance, 34 have issued a 'buy' rating. Citigroup, No^[11]mura, and Motilal Oswal Financial Services have all maintained or raised their target prices for Shriram Finance shares. For example, ^{[1][8][11][12]}Citigroup maintained its 'Buy' rating and raised its target price to ₹1,100 from ₹870, citing strong endorsement of Indian lenders by a global foreign bank and significant strengthening of Shriram's balance sheet. Nomura also incre^[12]ased its target price to ₹1,140, anticipating the deal will lead to a 24% accretion in Book Value Per Share and an improvement in Return on Assets. Analysts view the t^[11]ransaction as a strategically significant and value-accretive development that supports Shriram Finance's next phase of growth. The combination of^[5][12] a top-tier credit rating and a substantial foreign investment positions Shriram Finance for enhanced financial strength and accelerated expansion in the Indian market.

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