Speaking to ET Now, Chadha said the transaction comes at an opportune time, when foreign portfolio investors (FPIs) have been net sellers in the secondary market, yet global strategic capital continues to back India’s financial institutions. “If you add recent deals across RBL Bank, Yes Bank, Sammaan Capital and Federal Bank, the total foreign investment into Indian financials has crossed $10 billion. This signals confidence in regulatory stability and a pickup in economic growth,” he said.
Lower cost of funds, growth capital advantage
Chadha noted that Shriram Finance already benefits from excess liquidity, which helped margins in the previous quarter. The fresh equity infusion, he said, is not meant to plug liquidity gaps but to fund growth. “The company’s cost of funds is around 8.7–8.8%. With a global player like MUFG coming in, there is a strong likelihood of a rating upgrade, which in turn can reduce borrowing costs further,” he said.
Shriram Finance’s capital adequacy is already close to 20%, giving it ample headroom to expand its loan book as credit demand revives. “In an environment where bond yields are expected to gradually soften, access to growth capital at a lower cost becomes a major competitive advantage,” Chadha added.
Valuations and near-term dilution
On valuation concerns, Chadha acknowledged that the equity raise at around Rs 840 per share—roughly two times forward book value—could lead to some near-term dilution in return on equity (RoE). However, he described this impact as temporary. “This is a top-quartile NBFC with a strong operating track record. Credit costs have been well managed, staying below 2% even through Covid and the post-Covid cycle. Any short-term RoE dilution should be offset by faster growth and cheaper funding,” he said.
Sector-wide implications for NBFCs
Chadha said the deal could also have positive spillover effects for the broader NBFC sector, particularly for well-run, large players. “In a competitive environment, size and cost of funds matter. Tier I NBFCs such as Bajaj Finance, Cholamandalam, Poonawalla and potentially Shriram Finance stand to gain more than smaller peers,” he said.
Ownership changes and long-term outlook
On the possibility of changes in ownership structure, Chadha said it was too early to comment, but noted that Shriram Group has been strengthening its management bench and incentivising talent through stock-linked compensation. “Operationally, portfolios such as gold loans, commercial vehicles, passenger vehicles and MSME lending are seeing a pickup. Combined with growth capital, a potential rating upgrade and strategic investors on board, the long-term outlook looks constructive,” he said.Overall, Chadha remains positive on tier I NBFCs, adding that the MUFG-Shriram deal could help revive foreign investor confidence and pave the way for further strategic investments into India’s financial sector.