S&P Global Ratings has upgraded Shriram Finance Ltd.’s long-term issuer credit rating to ‘BBB-’ from ‘BB+’ and its short-term rating to ‘A-3’ from ‘B’, citing a significant strengthening of the company’s capital position following a proposed investment by MUFG Bank, it said in a release on Thursday. The outlook on the long-term rating is stable.
The upgrade follows MUFG Bank’s plan to invest $4.4 billion (about Rs 39,600 crore) for a 20% equity stake in Shriram Finance through a preferential share issuance. S&P said the capital infusion would materially bolster the non-bank lender’s balance sheet and provide substantial growth capital over the next three to four years. The rating agency also raised the issue rating on non-bank lender’s senior secured debt to ‘BBB-’ from ‘BB+’.
Capital Fortress
S&P expects the investment to lift Shriram Finance’s risk-adjusted capital (RAC) ratio to over 20% during fiscal 2027 and 2028, compared with its earlier estimate of 13.75–14.75%. The company’s Tier-1 capital ratio is projected to rise to 33–34% post-transaction, from around 20% as of end-September 2025. Following dilution, the promoter group’s shareholding is expected to fall to about 20.3% from 25.4%.
The transaction, already approved by shareholders, is subject to regulatory clearances, which S&P expects to be favourable. MUFG will be a non-controlling minority shareholder but will have the right to appoint two nominee directors to Shriram Finance’s board.
S&P said that the non-bank lender’s business strategy and risk appetite are likely to remain largely unchanged. Loan growth is expected to stay strong at 18–20% annually over the next two years, with the portfolio continuing to be dominated by commercial and passenger vehicle financing. Asset quality is expected to remain stable, with credit costs forecast at around 2%.
Operational Stability
The agency anticipates gradual improvement in profitability metrics, supported by lower funding costs due to MUFG’s association. Return on assets is expected to rise to about 3.3% from 3.05%, while net interest margins may improve to around 8.5%. Borrowing costs could decline by 10–30 basis points over the next two years.
The stable outlook reflects expectations of sustained benefits from stronger capitalisation and Shriram Finance’s established position in vehicle financing, while any further upgrade would depend on a meaningful improvement in its funding profile or deeper strategic alignment with MUFG.
Recently, Moody’s had revised the outlook on Shriram Finance to positive while affirming its Ba1 rating.