The Indian banking and financial services sector is becoming a focal point for Japan’s biggest banks, a trend highlighted by Mitsubishi UFJ Financial Group’s (MUFG) upcoming Rs 40,000 crore investment in Shriram Finance.
The deal, which would give MUFG a 20% stake in India’s second-largest non-banking finance company (NBFC), signals far more than a portfolio allocation, ET reported today. Japanese mega banks are seeking growth, scale and long-term returns outside a mature and demographically constrained home market.
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The pace of Japanese financial investment into India has accelerated sharply in recent times. MUFG’s move follows Mizuho’s long-awaited acquisition of Avendus, Daiwa Securities Group’s third investment in Ambit, both within the last two weeks, and Sumitomo Mitsui Banking Corporation’s $1.6 billion purchase of a 20% stake in Yes Bank earlier in May.
For MUFG, this is its second major attempt to secure a meaningful position in India’s fast-growing shadow banking space. Last year, it unsuccessfully pursued a $2 billion stake in HDB Financial Services, the NBFC arm of HDFC Bank. The Shriram Finance deal offers a compelling alternative, giving MUFG access to a well-established franchise with deep roots in retail lending and vehicle finance.
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The Shriram Finance deal builds on MUFG’s exposure to the Indian financial sector. The group invested over $338.5 million in DMI Finance Private last year and subsequently increased its stake to 20%, signalling a clear preference for partnering with local players rather than building operations from the ground up.
These deals show the Japanese have taken a shine to the Indian banking sector, just when the world is taking note of it. MUFG’s investment in Shriram Finance stands out for both its scale and intent. At $4.45 billion for a 20% stake, it would be one of the largest foreign investments in India’s NBFC sector and paves the way for a potential future acquisition. Shriram Finance gives MUFG an entry into India’s retail lending boom. As the country’s second-largest NBFC, it has a strong presence in commercial vehicle financing, two-wheelers, passenger cars and personal loans. All these segments are driven by income growth and consumption patterns, the areas where credit demand in India continues to outpace that of developed economies.India’s financial sector is a contrast to Japan’s
India offers what Japan increasingly cannot, such as rising incomes, strong loan demand, infrastructure-led growth and a rapidly formalising economy. Retail and small-business lending in India continues to expand at a robust pace, driven by vehicle ownership, personal consumption and MSME financing. Credit penetration remains relatively low, leaving ample headroom for long-term growth.
Japan, by contrast, faces structural limitations. Its banking market is long-established and dominated by the “big three” megabanks — MUFG, Sumitomo Mitsui Banking Corporation (SMBC) and Mizuho — which already serve most households and corporates. Population growth is negative, the society is ageing and household credit demand is subdued.
While the Bank of Japan began raising interest rates last year after decades of zero and negative-rate regimes, the shift has not fundamentally altered the growth equation. Margins remain thin, credit demand is weak and demographic decline continues to cap long-term growth. For many regional banks, shrinking local populations and limited digital capabilities have led to consolidation rather than expansion.
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Why Japanese banks are looking abroad
Overseas diversification has become a necessity rather than an option for Japanese banks. Organic domestic growth is slow while opportunities to add new customers or expand credit volumes at home are limited. Emerging markets, where credit demand is rising and financial penetration remains low, offer the growth and scale that Japanese banks increasingly need.
India stands out even among emerging markets. Its expanding middle class, large infrastructure push and policy emphasis on financial inclusion create sustained demand for credit across retail, MSME and corporate segments. For Japanese mega banks, India offers long-term exposure to consumption-led growth without the demographic drag that defines their home market.
Global scramble for Indian banks
Japanese are snapping up stakes in the Indian banking and financial services industry when it has already become a global attraction.
For decades, India protected its banking sector from deep foreign involvement. But now India’s banks are attracting a flood of international capital. Despite a moderation in overall net foreign direct investment, global interest in Indian financial institutions has surged dramatically. Data compiled by Bloomberg show that deals worth nearly $15 billion have been sealed this year alone, signalling a new phase of confidence in India’s financial potential.
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From Dubai’s Emirates NBD and Japan’s Sumitomo Mitsui Banking Corporation to U.S.-based Blackstone and Switzerland’s Zurich Insurance, a diverse mix of global players is investing heavily in Indian banks, insurers and non-banking financial companies (NBFCs). The latest is Blackstone announcing a $705 million investment for a 9.9% stake in Federal Bank, becoming its largest shareholder This flood of foreign capital signals a long-term strategic commitment to one of the fastest-growing and most digitally connected economies in the world. Japanese banks are fishing in a market which is already attracting major global players.