Mitsubishi UFJ Financial Group is investing 396.2 billion Indian rupees ($4.4 billion) in Indian shadow lender Shriram Finance for a minority stake, becoming the latest Japanese firm expanding in a rapidly growing banking market.

MUFG, Japan¡¯s largest lender, will own 20% of Mumbai-based Shriram, both companies said in statements on Friday. As part of the deal that values the Indian lender at around 2 trillion rupees, MUFG will receive 471 million new shares at 840.9 rupees each, Shriram said in an exchange filing. This marks a 3.3% discount to Thursday¡¯s closing price. The transaction is set to be the single biggest foreign investment in India¡¯s financial services sector.

Japan¡¯s biggest banks are scaling up investments in Indian financial firms, betting on the world¡¯s fastest-growing major economy, as they contend with a shrinking domestic market and relatively low interest rates at home. Sumitomo Mitsui Financial Group became the biggest shareholder of Yes Bank in a landmark deal earlier this year.

The announcement comes days after Mizuho Financial Group agreed to buy a controlling stake in KKR & Co.-backed investment bank Avendus Capital.

Shriram¡¯s shares reversed earlier losses to trade 2.5% higher on Friday, after having surged more than 50% this year, far outpacing the 16% rise in the NSE Nifty Financial Services Index.

MUFG said the investment will help to establish a business foundation in India¡¯s retail and small business markets and capture the growing domestic demand. The firm will appoint two directors on Shriram¡¯s board.

Shriram, India¡¯s second-biggest non-bank lender after Bajaj Finance, operates businesses across urban and rural areas, focusing on loans for commercial vehicles, tractors and passenger cars. Shadow banks play a key role in the economy by providing credit to individuals and companies that are unable to access traditional funding channels.

MUFG has previously said it¡¯s actively looking for acquisition targets in India, where it already has a significant presence. The firm has a wholly owned securities subsidiary in Mumbai, bolstering its local currency financing capabilities and strengthening its Asia-Pacific strategy. It is also among the top arrangers of foreign currency loans in the country.

The deal between MUFG and Shriram underscores rising foreign interest in India¡¯s vast financial services sector, where Prime Minister Narendra Modi¡¯s administration has unveiled a long-awaited package of reforms.

Japan¡¯s megabanks have been vocal about their appetite for Indian assets and the two Asian nations have recently deepened ties, including through a broader economic security pact. At the same time, deep-pocketed firms from the Middle East and Europe are now targeting the expanding middle class in India.

KPMG India Corporate Finance was the lead financial adviser to MUFG and JPMorgan Chase & Co. was the financial adviser.