Fincare Small Finance Bank to Merge with AU Small Finance Bank

In a significant development in India's small finance banking sector, Fincare Small Finance Bank (Fincare SFB) is set to amalgamate with AU Small Finance Bank (AU SFB). The merger, which is slated to take effect from February 1, 2024, is subject to all requisite approvals.

Key Terms of the Merger

According to the terms of the merger, shareholders of Fincare SFB will receive 579 shares in AU SFB for every 2,000 shares they hold in Fincare SFB. Post this transaction, it is anticipated that existing shareholders of Fincare SFB will maintain approximately 9.9 per cent ownership in AU SFB.

Conditions for the Merger

This transaction is contingent upon several pivotal conditions, including approval from the shareholders of both Fincare SFB and AU SFB, regulatory endorsements from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI), and a capital infusion of Rs 700 crore by the promoters of Fincare SFB.

Impact on Employees

AU SFB has confirmed that all employees of Fincare SFB will be integrated into the AU SFB family post-merger. As part of this strategic amalgamation, the Managing Director & CEO of Fincare SFB is slated to assume the role of Deputy CEO of AU SFB after the merger. Furthermore, Divya Sehgal, a current director on Fincare SFBs board, is set to join AU SFBs board, further enhancing the leadership team.

Business Profile of Fincare SFB

Fincare SFB, a digital-first small finance bank, has a diverse array of deposit and asset products, catering to approximately 54 lakh customers. Notably, nearly 93.6 per cent of its microfinance loans are channelled towards rural areas. The bank reports total deposits of Rs 9,453 crore with 79 per cent being retail deposits, and gross advances totalling Rs 10,541 crore. The banks network spans 1,292 banking outlets across 23 states and union territories, with a robust presence in south India, supported by a dedicated team of 14,867 individuals.

Benefits of the Merger

Upon completion of the merger, the combined entity will boast 2,334 touchpoints, serving approximately 98 lakh customers, and employing around 43,000 personnel. The combined balance sheet size is projected to exceed Rs 1.1 lakh crores as of September 2023.

The management of AU SFB underscores the multifaceted strategic rationale behind this merger, highlighting its complementary branch footprint that will establish a truly pan-India Small Finance Bank. The diversification of the portfolio, especially through access to rural and financial inclusion-focused microfinance businesses, is deemed a significant advantage.

This merger presents substantial opportunities to expand the deposit and asset franchise, particularly in south India, while offering compelling synergies, especially in deposits, technology, and scale-driven efficiencies over time.

The proposed merger between Fincare SFB and AU SFB is a significant development in India's small finance banking sector. The combined entity is expected to have a strong presence across the country, with a focus on rural and financially inclusive microfinance businesses. The merger is subject to regulatory approvals and is expected to be completed by February 1, 2024.