Core Viewpoint - MUFG Bank will invest Rs 39,618 crore (approximately $4.4 billion) to acquire a 20% stake in Shriram Finance, marking the largest foreign direct investment in India's financial services sector to date [1][3]. Company Overview - Shriram Finance is the flagship company of the Shriram group and is the second-largest retail non-banking financial company (NBFC) in India, with assets under management exceeding Rs 2.81 trillion [4]. - The company offers a variety of financial products, including commercial vehicle loans, MSME loans, tractor and farm equipment loans, gold loans, personal loans, and working capital finance through 3,225 branches, serving 9.6 million customers [12]. Investment Details - MUFG Bank will acquire over 471 million shares at Rs 840.93 each, translating into a 20% stake on a fully diluted basis [4]. - The investment is subject to shareholder approval, regulatory clearances, and customary closing conditions [5]. - Upon completion, MUFG Bank will be classified as a public shareholder and will have the right to nominate two non-independent directors to Shriram Finance's board [5][4]. Strategic Implications - The investment is expected to enhance Shriram Finance's capital adequacy, strengthen its balance sheet, and provide long-term growth capital [5]. - It will improve access to low-cost liabilities and potentially strengthen Shriram Finance's credit ratings while aligning governance and operational practices with global best standards [6]. - The partnership aims to support the development of India's road transport infrastructure and logistics value chain, contributing to financial inclusion, which is a key policy agenda in India [8]. Market Context - This transaction surpasses previous significant investments in the sector, including Emirates NBD's acquisition of a 60% stake in RBL Bank for $3 billion and SMBC's investment in Yes Bank for $1.6 billion [3]. - Japanese financial institutions have become significant investors in India's financial services sector this year, with notable investments from SMBC and Mizuho Financial Group [14].

Group 1 - The shift from unsecured loans to secured loans is becoming more pronounced among lenders, driven by higher delinquencies in the unsecured loan sector and rising gold prices [1][5] - The growth of unsecured personal loans has moderated after a period of overheating in the industry, leading to a strategic focus on secured loans, particularly in the SME lending space [2] - The State Bank of India (SBI) reports that its slippages in personal loans are low at 1-1.1%, indicating a strong credit quality in its chosen segments, including auto loans with high average CIBIL scores [3] Group 2 - The gold loan portfolio of banks has seen significant growth over the last two quarters, attributed to a decline in unsecured business loans and borrowers leveraging idle jewelry assets due to high interest rates [5] - According to Experian, the growth rate of unsecured loans, including credit cards and personal loans, has decreased to 9-18% year-on-year in September 2025, compared to 20-35% year-on-year growth in September 2024 [4]

Financial Data and Key Metrics Changes - The bank experienced a compression in Net Interest Margin (NIM) by approximately eight basis points due to front-loading of interest rate cuts, but expects a positive tailwind effect from deposit repricing over the next six to twelve months [8][20] - The cost of funds improved by about 18 to 20 basis points in the quarter, with a significant portion of the changes in time deposit rates expected to take longer to fully reflect [21][44] - The bank's capital ratios have seen a buildup, with contingent provisions added by about 1,600 crores, indicating a cautious approach to maintaining resilience [15][34] Business Line Data and Key Metrics Changes - Loan growth has picked up across segments, with the bank focusing on disciplined pricing and market share gains in deposits [7][8] - The bank's loan-to-deposit ratio (LDR) is expected to decrease below 90, with strategic objectives set for loan growth to align with market trends [24][25] - Fee income grew by approximately 9%, indicating consistent growth across various products [57] Market Data and Key Metrics Changes - The bank's retail deposits increased, while non-retail deposits decreased, reflecting a strategic focus on retail banking [52] - The bank's market share in deposits is influenced by disciplined pricing strategies, with a year-on-year growth of about 15% in average deposits [53] Company Strategy and Development Direction - The bank is investing in technology and distribution to enhance operational leverage and customer experience, including initiatives in Generative AI [9][75] - The focus remains on maintaining healthy asset quality and managing expenses tightly, with expectations of stability and positive bias in key financial metrics over the medium to long term [10][11] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about the domestic economy's strength, despite global volatility, and highlighted the positive impact of fiscal and monetary measures on economic activity [5][6] - There is a belief that the economic cycle is beginning to improve, with expectations of sustained growth beyond the festive period [33] Other Important Information - The bank is cautious about credit standards in unsecured loans, maintaining a disciplined approach to underwriting while participating in growth opportunities [94] - The bank's home loan segment is expected to see growth, with improvements in turnaround times and a focus on customer relationships [68][98] Q&A Session Summary Question: Recovery in NPL movement - Management indicated that recoveries included a one-off improvement from an NPA that performed satisfactorily, contributing to a 10 basis point upgrade [15][17] Question: Guidance on margins - The bank confirmed that exit margins are expected to improve, with stable rates anticipated to positively impact NIMs [22][23] Question: Deposit growth and LDR - The bank's LDR is expected to decrease below 90, with a strategic focus on aligning loan growth with market trends [24][25] Question: Capital utilization post-merger - Management noted that while capital ratios are high, they plan to utilize capital for growth opportunities as the bank resumes a faster growth trajectory [34][35] Question: Fee income growth - The fee income growth was attributed to regular growth rather than one-off events, with consistent performance across various products [57] Question: Home loan growth and market share - The bank is focused on maintaining credit quality while gradually increasing market share in home loans, with a cautious approach to pricing [98] Question: Gold loan yields - Yields on gold loans remain attractive, with the bank maintaining a cautious approach to ensure clarity in terms for clients [102] Question: Credit card growth - The bank noted a cautious approach to credit card issuance, focusing on economic sense in participation during festive periods [114] Question: SME loan opportunities - Management expressed optimism about the SME segment, noting positive credit demand and stable asset quality [126]