The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Shritama Bose

MUMBAI, April 15 (Reuters Breakingviews) - Japanese banks are finally re-entering a world of positive interest rates in their home market. But they aren't waiting around for a payday. Mitsubishi UFJ Financial 8306.T is Exhibit A.

The $118 billion behemoth led by Hironori Kamezawa is poised to buy a 20% stake in a shadow lender owned by HDFC Bank HDBK.NS for $2 billion, a punchy five times book value, according to the Economic Times.

HDB Financial makes loans to small businesses and to individuals for buying goods ranging from cars to smartphones. MUFG taking a stake would mark a big step up from the Japanese firm's investment in New Delhi-based fintech DMI Finance.

Though eye-catching, MUFG's outlay wouldn't be out of whack with the market. It would value the business with a $10 billion loan portfolio on a par with the forward price-to-book multiple of investor darling Bajaj Finance BJFN.NS.

Blistering expansion helps explain the rich price tag: India's non-bank financial companies grew their loan books 21% year-on-year in September, per the Reserve Bank of India, quicker than the 19.4% rate clocked by traditional banks and six times faster than bank loan growth in Japan. Swedish buyout shop EQT EQTAB.ST and tycoon Mukesh Ambani, through his Jio Financial JIOF.NS, are among those who have dived into the sector already - along with MUFG's domestic rival Sumitomo Mitsui Financial 8316.T, which bought a majority stake in Fullerton Credit in 2021.

HDFC needs to float its non-bank to please its regulator following the completion last year of its own mega-merger with its parent. That presents buyers with a rare opportunity to take a large stake in an established financial firm with a strong owner. MUFG can build on the 38% of its earnings generated through its stakes held in other banks, including Morgan Stanley MS.N.

It would also underscore Japan Inc's enduring hunt for growth overseas. Stocks of the megabanks have beaten the Nikkei 225 index .N225 over the past year, partly on the hope of higher earnings from the Bank of Japan 8301.T raising rates. MUFG also deepened its joint venture with Morgan Stanley in July, so clients will now get broader equities coverage as interest in Japan heats up. Sumitomo Mitsui Financial has been developing an alliance with Jefferies. But they and peers still trade below book value.

A meaningful uptick in domestic profit and net interest margins for Japanese banks would require a sustained tightening beyond the short-term policy rate of 0%-0.1% set last month. That looks a long way off. Meanwhile the yen's JPY= persistent weakness against the U.S. dollar suggests overseas earnings are unlikely to be squeezed any time soon. A trip to India makes sense for MUFG.

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CONTEXT NEWS

Mitsubishi UFJ Financial Group will buy a 20% stake in India's HDB Financial Services at five times book value, ahead of a listing of the non-banking subsidiary of HDFC Bank, the Economic Times reported on April 12, citing unnamed sources.

(Editing by Una Galani, Antony Currie and Katrina Hamlin)

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