Japan's MUFG discusses buying 20% stake in HDFC Bank's IPO-bound arm

Japan's MUFG discusses buying 20% stake in HDFC Bank's IPO-bound arm

Mitsubishi UFJ Financial Group Inc. is in talks to acquire a roughly $1.7 billion stake in HDFC Bank Ltd.’s consumer lending unit to tap booming demand for personal finance loans in India, people familiar with the matter said.

Japan’s biggest lender is nearing the purchase of a 20 per cent stake in HDB Financial Services Ltd., which offers personal, gold and auto loans, said the people, who asked not to be named because the information is private. It would mark one of the biggest financial sector deals involving lenders of the two countries.

Negotiations are in the final stages, terms may change and it’s possible that no agreement will be reached, they added. Shares of HDFC, which fell as much as 1.5 per cent in earlier trading, recouped some of those losses after the news about the deal talks.

The move marks the latest in a string of acquisitions by Japan’s top banks in India, a market which is rapidly becoming a pillar of their growth plans after building out a presence in Asia’s other emerging economies. Rival Sumitomo Mitsui Financial Group Inc. bought a majority stake in Fullerton India Credit Co. for about $2 billion in 2021, purchasing the remainder of the company last month.

A spokesperson for MUFG declined to comment. A representative for India’s HDFC didn’t immediately respond to a request for comment.

India’s biggest lender, which owns a 95 per cent stake in HDB Financial Services, has been seeking ways to sell part of its non-bank lending subsidiary for years. The firm was slated for a stock market debut about five years ago before ending the plan in favor of finding a strategic investor. More recently, the bank once again revived plans for an initial public offering of the unit, Economic Times wrote last month, citing people familiar with the development.

Facing sluggish growth at home, Japan’s biggest lenders have been scouring for deals in Asia that can boost their lending revenues while building out their Wall Street investment banking operations in parallel.

India’s population overtook China’s last year, and its economy is set to surpass Japan in 2026, according to the International Monetary Fund. MUFG and Sumitomo Mitsui rank among the top arrangers of Indian offshore loans in the last few years, although they were toppled by HSBC Holdings Plc last year.

For its part, MUFG has been ramping up its operations in India. In 2022, it opened a branch in the Gujarat International Finance Tec-City, a flagship project of Prime Minister Narendra Modi. It also set up a fund to target middle- to late-stage Indian startups. Earlier this year, it acquired a stake in DMI Finance Pvt, an Indian fintech company.

Japanese lenders have also been exploring opportunities in India’s shadow banking sector, as the country’s regulations make it impossible for them to buy local banks.

Economic Times reported on the deal earlier Friday.