India Ratings and Research has revised the Outlook on Shriram Finance Limited (SFL) and its debt instruments to Positive while affirming the ratings, most notably at ‘IND AA+’. This action follows the announcement regarding MUFG Bank’s proposed acquisition of a 20% stake in SFL for approximately INR 400 billion. This strategic move is expected to substantially strengthen SFL’s capital base and improve its funding cost competitiveness.
Credit Rating Action Overview
India Ratings and Research (Ind-Ra) announced on February 17, 2026, that it has revised the Outlook on Shriram Finance Limited (SFL) and its long-term debt instruments from Stable to Positive. All underlying ratings have been simultaneously affirmed. The Issuer Rating stands affirmed at IND AA+/Positive.
Key Instruments Rating Changes
The rating revision applies across various debt segments, reflecting the expected benefits from the proposed strategic investment:
- Non-convertible debentures: Rated IND AA+/Positive (Size: INR 359,258.85 million). Outlook revised to Positive; rating affirmed.
- Bank loans: Rated IND AA+/Positive/IND A1+. Outlook revised to Positive; rating affirmed.
- Subordinated debt: Rated IND AA+/Positive (Size: INR 76,200 million). Outlook revised to Positive; rating affirmed.
- Short-term debt/commercial paper programme: Rated IND A1+. Affirmed.
- Fixed deposits: Rated IND AA+/Positive. Outlook revised to Positive; rating affirmed.
Rationale for Positive Outlook
The primary driver for the Outlook revision is the announcement that MUFG Bank, Ltd. intends to acquire a 20% stake in SFL through a substantial equity infusion of around INR 400 billion. This infusion is projected to increase SFL’s net worth to over INR 1,000 billion post-infusion (up from INR 620.9 billion at 9MFY26).
Strengths Bolstering Ratings
Ind-Ra notes several strengths:
- Strategic Benefits: The MUFG transaction is expected to lower SFL’s funding costs by approximately 100bp over the medium term and grant access to international funding markets.
- Franchise Strength: SFL maintains a large, well-diversified retail lending franchise, particularly strong in vehicle financing, post-merger with Shriram City Union Finance Ltd. Assets Under Management (AUM) stood at INR 2.9 trillion at 9MFY26.
- Portfolio Mix: The portfolio is diversified across Commercial Vehicles (45.65% of AUM), Passenger Vehicles (21.67%), and MSMEs (14.08%). SFL plans to shift focus towards lower-risk products like new vehicles and gold loans.
- Capital Buffers: Capital adequacy remains robust, with a Tier-1 ratio of 19.7% at 9MFY26. Post-infusion, leverage is expected to decline sharply to around 2.6x from 4.05x.
Asset Quality and Liquidity
Despite concentration risks in rural areas and CV financing, the company has demonstrated reasonable buffers. The Gross Non-Performing Assets (NPAs) improved to 4.53% at end-9MFYE26 (from 5.45% in FY24). Liquidity remains Adequate, with a positive cumulative surplus in the one-year structural liquidity statement as of December 2025. Cash and equivalents covered debt repayments adequately.
Key Financial Highlights (As of 9MFY26)
Key performance metrics reported for the nine months ending December 2025:
- Total Assets: INR 3,182.2 billion.
- Total Equity: INR 620.9 billion.
- Net Profit: INR 69.9 billion.
- Return on Average Assets (RoAA): 2.9% (compared to 3.51% for FY25).
Source: BSE
