Moody’s Ratings has revised the outlook on Shriram Finance Limited (SFL) to positive from stable and affirmed its Ba1 long-term corporate family rating (CFR). The change reflects expectations that SFL’s business and financial profile will strengthen, supported by a strong strategic shareholder and a significant capital increase. MUFG Bank plans to acquire a 20% stake in SFL, which is expected to close in 2026.
Rating Upgrade Rationale
Moody’s Ratings has changed Shriram Finance Limited’s (SFL) outlook to positive, affirming its Ba1 long-term corporate family rating (CFR). The positive outlook is based on the anticipation of a stronger business and financial standing, bolstered by a significant capital infusion.
Strategic Investment by MUFG Bank
MUFG Bank intends to acquire a 20% stake in Shriram Finance through a preferential allotment of shares for INR396 billion (approximately $4.4 billion). The transaction, pending regulatory approvals, is anticipated to finalize in 2026. This investment is expected to provide strategic advantages, including a more robust capital base and access to global expertise, further diversifying SFL’s funding sources and enhancing risk management practices.
Financial Profile Improvements
The capital infusion is projected to strengthen SFL’s tangible common equity to tangible managed assets (TCE/TMA) ratio to over 29%, a notable increase from around 19% as of March 2025. SFL is expected to maintain a TCE/TMA ratio above 20% over the next 4-5 years. Profitability is also expected to improve due to lower funding costs. The company anticipates its funding costs to decrease by roughly 100 basis points over the next 2 years.
Asset Quality and Debt Coverage
SFL’s asset quality is expected to remain stable. The 12-month debt maturity coverage ratio is also projected to rise above 90% from 31% as of March 2025, following the capital infusion.
Potential Rating Upgrade
Moody’s could further upgrade SFL’s rating if the company improves its net income to average managed assets to approximately 3.5% on a sustained basis, maintains a TCE/TMA ratio above 21%, and sustains stable asset quality.
Factors for Downgrade
A downgrade is unlikely over the next 12-18 months, but could occur if asset quality deteriorates significantly, resulting in lower profitability and capitalization. Specifically, a sustained increase in net charge-offs to above 2.5% of average gross loans, or an increase in problem loans to gross loans above 7%, combined with weakened access to funding, could trigger a downgrade. Additionally, a reduction in its TCE/TMA ratio below 17% could also lead to a downgrade.
Source: BSE
