Is a banking licence on the cards for Shriram Finance?

Shriram Finance has “no immediate plans” to apply for a banking licence, the company’s top management said today, days after its board approved Japan’s Mitsubishi UFJ Financial Group’s (MUFG) proposal to invest ₹39,618 crore in the non-banking financial company (NBFC). However, the management indicated that the option has not been entirely ruled out over the longer term.

In an exclusive conversation with Fortune India, Shriram Finance MD & CEO Parag Sharma said the company is not currently looking to transition into a bank, citing strong growth opportunities within its existing business model. “Given the growth opportunities available in our current asset classes, there is no need to look at other options at this stage,” he said. “The scope and demand are huge. We will continue to focus on what we do best and grow as much as possible.”

Sharma added that the company remains focused on maximising opportunities within the NBFC framework for now but any consideration of a bank licence is likely to be evaluated only over the long term.

Speculation around a possible banking licence gathered pace after Shriram Finance announced the strategic investment by MUFG Bank. Shortly after the deal was disclosed, Kotak Mahindra Bank founder Uday Kotak publicly raised questions on whether the company could eventually transition into a bank following the high-profile foreign investment.

Taking to X (formerly Twitter), Kotak welcomed the transaction, calling it a positive signal for India’s financial sector. “Happy to see big-ticket foreign investment in Shriram Finance by Mitsubishi UFJ, a reputed global bank and financial institution,” he wrote. He also questioned the company’s future direction, asking whether Shriram Finance would continue as an NBFC—given the flexibility the structure offers—or apply for a banking licence in due course.

Addressing these queries at a press conference on the Shriram Finance–MUFG partnership in Delhi, Umesh Revankar, Executive Vice Chairman of Shriram Finance, said that becoming a bank is not on the company’s immediate agenda.

“We prefer to remain where we are. India is growing very fast, and that gives us a large opportunity in retail lending. There is enough scope to expand with what we have already built,” Revankar said.

The board of Shriram Finance (SHFL) on Friday, December 19, approved a ₹39,618 crore equity infusion by MUFG Bank through the preferential allotment route. The investment has been priced at ₹840.93 per share and translates into an ownership stake of around 20% for MUFG, almost on par with the current promoter group. The transaction is subject to shareholder approval, regulatory clearances, and standard closing conditions.

Describing the partnership as transformational, Sharma said the association with MUFG is a long-term, strategic one that significantly strengthens Shriram Finance’s balance sheet and growth potential. “The partner is strategically aligned and committed for the long term. This definitely strengthens the company,” he said.

The substantial capital infusion, Sharma added, will allow Shriram Finance to leverage MUFG’s global expertise to accelerate growth over the coming years. “That is the basic objective of this partnership. As growth picks up, there will be multiple benefits for both investors and the company,” he said.

On timelines, Sharma said the transaction remains subject to shareholder and regulatory approvals, including from the RBI and the Competition Commission of India (CCI). “Regulatory processes take their own time, but our hope is that things move quickly, possibly by March, depending on how approvals progress,” he said.

Sharma reiterated that Shriram Finance will continue to focus on its core strength—commercial vehicle (CV) financing—a segment it has operated in for over four decades. “Commercial vehicles have been our focus for the last 46 years, and that is not going to change,” he said.

While the company had earlier reduced exposure to new vehicle financing due to margin pressures, it now plans to sharpen its focus on new commercial vehicle financing, particularly for existing customers. “If we do not finance a customer’s new vehicle requirement, the customer moves to the market. Retaining customers by funding their new vehicle needs is something we will definitely focus on,” Sharma said, adding that this would help scale the CV portfolio faster.

The MD & CEO also made it clear that the MUFG investment does not signal a move into unfamiliar business lines. “We are not looking at any new segments. Our focus remains on heavy commercial vehicles, where we have a deep, niche presence, especially among small and first-time borrowers,” he said.

He added that the company will continue to expand its MSME lending portfolio, which has demonstrated consistent performance over the past 15 years. This expertise, earlier housed in merged entities, has now been extended nationwide through Shriram Finance’s transport branch network.

On future fundraising, Sharma said that while borrowings will continue as part of normal business operations, there is no immediate need for additional equity capital. “With this level of capital infusion, we will be sufficiently well-capitalised. Our capital adequacy will rise to around 30%,” he said.However, he noted that generating shareholder returns would require leveraging the stronger balance sheet to grow faster. “Capital by itself does not create returns. Growth and efficient leverage do,” he said.

On the possibility of a credit rating upgrade, Sharma said that rating agencies would assess the situation only after the capital infusion is completed and reflected on the balance sheet. “Once the funds are in place, the normal rating evaluation process will follow. Positivity is definitely there,” he said.

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