MUFG In Talks To Acquire 20% Stake In HDFC Bank's IPO Bound Arm

Mitsubishi UFJ Financial Group Inc. is reportedly in discussions to acquire a stake worth approximately USD 1.7 billion in HDFC Bank’s consumer lending arm, aiming to capitalise on the growing demand for personal finance loans in India, according to sources familiar with the matter.

The potential deal involves Mitsubishi UFJ Financial Group acquiring a 20 per cent stake in HDB Financial Services, which offers various types of loans including personal, gold and auto loans. If finalised, this transaction would represent one of the largest financial sector deals between lenders from Japan and India.

While negotiations are said to be in the final stages, the terms of the deal are subject to change, and there is a possibility that an agreement may not be reached. Shares of HDFC Bank experienced fluctuations in response to the news of the ongoing discussions.

This move follows a trend of Japanese banks seeking acquisitions in India as part of their expansion plans in the region. Sumitomo Mitsui Financial Group Inc. previously acquired a majority stake in Fullerton India Credit Co. for approximately USD 2 billion in 2021, ultimately purchasing the remaining shares of the company last month.

Although representatives from Mitsubishi UFJ Financial Group declined to comment, HDFC Bank did not immediately respond to requests for comment on the matter. HDFC Bank, India's largest lender, has been exploring options to divest a portion of its non banking lending subsidiary, HDB Financial Services, for several years. While the firm was previously considering a stock market debut, plans have shifted toward finding a strategic investor.

Amid sluggish growth in their home market, Japanese banks are increasingly seeking opportunities in Asia to bolster their lending revenues. India's growing population and economy make it an attractive destination for investment. MUFG and Sumitomo Mitsui have been active participants in arranging offshore loans in India in recent years, although they faced competition from HSBC Holdings Plc last year.

MUFG has been expanding its presence in India, establishing a branch in Gujarat International Finance Tec-City in 2022 and investing in Indian fintech company DMI Finance earlier this year. Japanese lenders are also exploring opportunities in India's shadow banking sector due to regulatory constraints preventing them from acquiring local banks.