Fincare SFB to be amalgamated into AU Small Finance Bank

In a significant development in the small finance banking sector, Fincare Small Finance Bank (Fincare SFB) is poised to amalgamate into AU Small Finance Bank (AU SFB), with the merger slated to take effect from February 1, 2024, subject to all requisite approvals.

AU SFB, in a late evening regulatory filing, announced its approval of the amalgamation. 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% ownership in AU SFB.

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.

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 and 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 SFB's board, is set to join AU SFB's board, further enhancing the leadership team.

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% of its microfinance loans are channelled towards rural areas.

The bank reports total deposits of Rs 9,453 crore with 79%being retail deposits, and gross advances totalling Rs 10,541 crore. The bank's 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.

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.