The Japanese are bringing money to India in bags full of money, this is the reason behind it

India's banking and financial sector is attracting investors from around the world, but major Japanese banks are showing the greatest interest. 

Japan's leading financial company, Mitsubishi UFJ Financial Group (MUFG), is preparing to invest approximately ₹40,000 crore in India's Shriram Finance. This deal could give MUFG a 20% stake in the country's second-largest NBFC.

Japan's economy has been sluggish for a long time. The population is aging, new borrowers are scarce, and banks have little room to expand within the country. 

Therefore, Japanese banks are now looking for countries that offer both revenue and expansion potential. India offers them this opportunity.

Incomes in India are rising, people are buying vehicles, small businesses are expanding, and demand for loans is constantly increasing. 

Importantly, many individuals and small businesses in the country are still not fully connected to the formal banking system. This means that the market for loans and financial services is only going to grow larger in the future.

Why are NBFCs the first choice of Japan?

Instead of opening banks directly in India, Japanese banks are acquiring stakes in strong NBFC companies. MUFG's investment in Shriram Finance is part of this strategy. 

Shriram Finance has a strong network in vehicle loans and retail finance, giving Japanese banks direct access to India's core credit market. MUFG has previously attempted to acquire a stake in HDB Financial. 

Additionally, it has increased its stake to 20% by investing in DMI Finance. Clearly, Japan wants to grow in India with local partners rather than going it alone.

There is a competition to invest in India

Japan isn't alone. Major financial players from around the world are lining up to invest in India. Names like Blackstone of the US, Zurich Insurance of Switzerland, and Emirates NBD of Dubai are investing in Indian banks and NBFCs. 

This year alone, deals worth approximately $15 billion have been completed. Recently, Blackstone acquired a nearly 10% stake in Federal Bank, making it the bank's largest shareholder. This shows that foreign investors are seeing India not just as a short-term opportunity, but as a long-term asset.

India vs Japan

While Japan's borrower base is shrinking, India is adding new customers every year. Infrastructure projects, the MSME sector, digital payments, and financial inclusion are India's strengths. This is why Japanese banks are bringing in large sums of money to India.