'Foreign Banks Have Confidence In India's Growth Story': Keki Mistry Hails Landmark Shriram-MUFG Deal

India's financial services is in the spotlight again after it was announced earlier today that Japan’s Mitsubishi UFJ Financial Group (MUFG) will invest nearly Rs 40,000 crore or $4.5 billion for a 20% stake in Shriram Finance Ltd. The deal marks the largest strategic investment by a foreign lender in India's growing non-banking financial company (NBFC) sector.

Industry experts have hailed the landmark deal as a positive signal for the banking sector and the Indian economy. In an exclusive interactive with NDTV Profit, Keki Mistry, former Vice Chairman and Chief Executive Officer (CEO) of Housing Development Finance Corporation (HDFC), said the deal brings in further confidence of foreign investor groups in Indian markets.

According to Mistry, the deal brings in confidence in India and shows that foreigners have confidence investing in Indian markets as they are confident about the regulatory environment, growth opportunities that exist. "So, it is a positive signal for India," said the HDFC veteran.

The former HDFC CEO has no doubt that the Indian economy is on very strong footing. "For the economy to continue growing at a stable pace, finance is the most important ingredient or raw material,'' said Mistry.

According to him, India's financial sector is extremely attractive to foreign investors because the penetration level of any financial services product in India is very low by global standards. "So growth opportunities for the financial services sector are huge, which is why Japanese banks, which are long-term investors are looking at India so favourably,'' said Mistry.

Mistry does not see any challenge in India's banking sector over foreign capital because the Indian financial system is very strong and very well regulated. "Its domestic investment itself is so large, so I wouldn't worry about foreigners coming in and putting more capital into India," he said.

Giving an example, Mistry explained that the MSCI index is based on the amt of money foreigners can invest into a company. "For banks, the foreign ownership is capped at 74%. Theoretically, if we were to increase that from 74% to 100%, one can get a lot of foreign money flowing into India without any impact whatsoever on control or shareholding," he said.

"This is because the Reserve Bank of India controls the shareholding very closely in terms of ownership in banks. So these small little changes can bring about a huge passive capital into India, if not active capital," he said.

The landmark transaction will be the largest foreign direct investment in a financial services company in India and reflects foreign banks bet on Indian growth story. According to the deal, the investment in Shriram Finance will be MUFG Bank’s parent entity's largest investment in India so far. The investment will be made through a preferential issuance of equity shares.