Moody's affirms Shriram Finance's Ba1 rating, changes outlook to positive
This story was originally published at 14:18 IST on 10 January 2026
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NEW DELHI – Moody's Ratings Friday affirmed Shriram Finance Ltd.'s Ba1 long-term corporate family rating and changed the outlook to positive from stable, the company said in a filing.
On Dec. 19, the non-banking financial company announced that MUFG Bank planned to acquire a 20% stake in the company through a preferential allotment of shares for INR 396 billion. The transaction is subject to regulatory approvals and is expected to close in 2026. The investment by MUFG Bank will provide strategic benefits, including a stronger capital base, access to global expertise and funding channels, and will further improve Shriram Finance's funding diversity and risk management practices over time.
"The positive outlook reflects our expectation that SFL's business and financial profile will strengthen, supported by a strong strategic shareholder and a significant capital increase," Moody's Ratings said. "We expect the company's capitalisation will materially strengthen after the transaction, its profitability to gradually improve as its cost of funds declines, while its access to onshore and offshore funding will improve."
The capital infusion will strengthen Shriram Finance's tangible common equity to tangible managed assets ratio to above 29% from around 19% as of March 2025, one of the highest among rated non-bank finance companies in India. "We expect the company to maintain a tangible common equity to tangible managed assets ratio above 20% over the next 4-5 years after considering the credit growth," the rating agency said.
A sustained improvement in profitability is key to a rating upgrade, the rating agency said. The rating agency expects the company's profitability to improve over the next 12-18 months, driven by lower funding costs as rate cuts by the central bank are transmitted in 2025 and funding access improves post-transaction. The company anticipates a 100-basis-point decline in funding costs over the next 2 years.
"The company's 12 month debt maturity coverage ratio will also rise to above 90% from 31% as of March 2025 given the large capital infusion. However, we expect the ratio to normalise over the next year once the company deploys the new funds to originate loans and to reduce some maturing debts," Moody's Ratings said. "Meanwhile, we expect SFL's asset quality to remain stable over the next 12-18 months, supported by robust lending and loan collection processes, a stable macroeconomic environment, and a high proportion of collateralised loans."
The rating agency said outlook of the company is positive, with potential upgrades tied to improved profitability and stable asset quality. The company could see an upgrade if it achieves a net income to average managed assets ratio of 3.5% on a sustained basis and keeps asset quality stable.
However, the rating agency can downgrade the rating if asset quality deteriorates significantly amid a worsening operating environment, resulting in lower profitability and capitalisation. "A downgrade is also likely if there is a significant regulatory change that impacts the company's franchise strength," the rating agency said.
Last week, CARE Ratings Ltd. upgraded credit rating of Shriram Finance Ltd.'s long-term instruments amounting to INR 1.56 billion to 'AAA' from 'AA+' and maintained a 'stable' outlook. The rating agency also assigned 'AAA' rating to Shriram Finance's fixed deposit programme, while maintaining a 'stable' outlook.
In the September quarter, Shriram Finance had posted net profit of INR 23.07 billion, up 11% on year. Friday, shares of the company ended down 1.8% at INR 975.40 on the National Stock Exchange. End
Reported by Vaishali Tyagi
Edited by Akul Nishant Akhoury
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