Shriram Finance received a significant boost from Moody's Ratings, which affirmed the company's Ba1 long-term corporate family rating while upgrading the outlook from stable to positive on January 9, 2026. The rating action comes in response to MUFG Bank's strategic investment announcement and the expected strengthening of the company's financial profile.

Strategic Partnership with MUFG Bank

The positive outlook reflects MUFG Bank's planned acquisition of a 20% stake in Shriram Finance through a preferential allotment of shares worth ₹39,600 crores (approximately $4.40 billion), announced on December 19, 2025. The transaction, subject to regulatory approvals and expected to close in 2026, will provide multiple strategic benefits to the non-banking financial company.

Significant Capital Strengthening Expected

Moody's expects the capital infusion to materially strengthen Shriram Finance's capitalization metrics. On a pro forma basis, the company's tangible common equity to tangible managed assets (TCE/TMA) ratio will rise to above 29.00% from around 19.00% as of March 2025, positioning it among the highest-capitalized rated non-bank finance companies in India.

The rating agency expects Shriram Finance to maintain a TCE/TMA ratio above 20.00% over the next 4-5 years after considering credit growth, while the 12-month debt maturity coverage ratio will rise to above 90.00% from 31.00% as of March 2025.

Profitability and Funding Cost Improvements

Moody's anticipates strengthened profitability over the next 12-18 months, supported by declining funding costs due to gradual transmission of central bank rate cuts in 2025 and improved funding access post-transaction. The company expects its funding costs to decline by approximately 100 basis points over the next two years.

Key expected benefits from the partnership include:

• Enhanced access to global expertise and funding channels
• Improved funding diversity and risk management practices
• Stronger capital base supporting business expansion
• Access to onshore and offshore funding markets

Rating Upgrade Criteria and Risk Factors

Moody's outlined specific conditions for a potential rating upgrade, requiring sustained improvement in key financial metrics. The rating agency noted that it does not incorporate affiliate support from MUFG Bank in the current rating, as the willingness to support during stress periods remains limited despite the 20.00% stake and board representation.

Downgrade triggers include net charge-offs exceeding 2.50% of average gross loans, problem loans to gross loans ratio above 7.00%, or TCE/TMA ratio falling below 17.00%. As of September 30, 2025, Shriram Finance reported consolidated assets of ₹2,99,000 crores.

Market Position and Outlook

The rating affirmation with positive outlook reflects Moody's confidence in Shriram Finance's strengthened business and financial profile. The agency expects stable asset quality over the next 12-18 months, supported by robust lending and loan collection processes, stable macroeconomic environment, and high proportion of collateralized loans.

The strategic partnership with MUFG Bank represents a significant milestone for Shriram Finance, providing enhanced financial flexibility and positioning the company for sustained growth in India's competitive non-banking financial services sector.

Source:

Shriram Finance Limited emerged as one of the standout performers in the Nifty 50 Index during 2025, delivering exceptional returns of 72.40% to investors. The Non-Banking Financial Company, which specializes in retail asset financing across commercial vehicles, two-wheelers, gold loans, personal loans, and MSME finance, closed at ₹975.05 per equity share with a market capitalization of ₹1,83,442.21 crore.

Strategic Partnership Drives Growth

The stock's remarkable performance was significantly bolstered by a major strategic partnership announcement. Japan's MUFG Bank, a subsidiary of Mitsubishi UFJ Financial Group, agreed to invest ₹39,620 crore (approximately $4.3 billion) to acquire a 20% stake in Shriram Finance through preferential share allotment. This landmark deal, pending regulatory approvals, also involves the company's major shareholders, Shriram Ownership Trust and Shriram Capital Private Limited.

Strong Financial Performance

The company demonstrated robust financial growth across key metrics during the reporting period:

Over the past five years, Shriram Finance has maintained impressive growth momentum with revenue and net profit growing at a CAGR of 21.55% and 30.69% respectively. The company's return ratios reflect strong operational efficiency, with ROCE at 11% and ROE at 15.6%. The earnings per share stands at ₹52.4, while the debt-to-equity ratio is 3.87x.

Assets Under Management Expansion

Total Assets under Management showed consistent growth, rising 15.74% to ₹2,81,309.46 crore as of September 30, 2025, compared to ₹2,43,042.55 crore in the previous year and ₹2,72,249.01 crore as of June 30, 2025.

The AUM composition reflects a diversified lending portfolio:

Extensive Network and Market Reach

Shriram Finance operates through a comprehensive pan-India network comprising 3,225 branches supported by 78,833 employees and a 60,676-member business team. The company serves 96.64 lakh customers across the country, with particular strength in semi-urban and rural markets.

Geographically, the AUM distribution in Q2 FY26 shows:

• Semi-urban and rural areas: ₹1,410.7 billion
• Urban regions: ₹1,074.4 billion
• Metro markets: ₹328.0 billion

The branch network mirrors this geographic focus with 1,771 branches in semi-urban and rural areas, 1,140 branches in urban regions, and 314 branches in metro cities.

Management Outlook and Analyst Targets

Management has provided guidance for a 100 basis points improvement in cost of funds over the next 2-3 years, driven by borrowing-cost advantages from gradual liability repricing during this period.

Brokerages maintain positive sentiment on the stock with attractive target prices:

The strong fundamentals, strategic partnership with MUFG, extensive rural and semi-urban presence, and consistent financial performance position Shriram Finance as a compelling investment opportunity in the NBFC space. The company's diversified lending portfolio and deep market penetration across India provide a solid foundation for sustained growth.