Fincare SFB to Merge with AU Small Finance Bank

In a significant development within the small finance banking sector, Fincare Small Finance Bank (Fincare SFB) is set to merge with AU Small Finance Bank (AU SFB), with the merger scheduled to come into effect from February 1, 2024, subject to all necessary approvals. The approval of the amalgamation was announced by AU SFB in a late evening regulatory filing.

Merger Terms and Conditions

Under 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. Following this transaction, it is expected that existing shareholders of Fincare SFB will maintain approximately 9.9% ownership in AU SFB.

The successful completion of this merger is contingent upon various key conditions, including approval from the shareholders of both Fincare SFB and AU SFB, regulatory clearances 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.

Integration and Leadership Transition

AU SFB has affirmed 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 expected to assume the role of Deputy CEO of AU SFB post-merger. Additionally, Divya Sehgal, a current director on Fincare SFB’s board, is poised to join AU SFB’s board, further enriching the leadership team.

Fincare SFB’s Profile and Impact

Fincare SFB, a digital-first small finance bank, offers a diverse range of deposit and asset products, serving approximately 54 lakh customers. A notable aspect of its operations is the allocation of nearly 93.6% of its microfinance loans to rural areas.

The bank reports total deposits of Rs 9,453 crore, with 79% comprising retail deposits, and gross advances amounting to Rs 10,541 crore. With a network spanning 1,292 banking outlets across 23 states and union territories, Fincare SFB has a robust presence in south India, supported by a dedicated team of 14,867 individuals.

Projected Impact and Strategic Rationale

Upon completion of the merger, the combined entity is expected to have 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 emphasizes the multifaceted strategic rationale behind the merger, citing the complementary branch footprint that will establish a truly pan-India Small Finance Bank. The diversification of the portfolio, particularly through access to rural and financial inclusion-focused microfinance businesses, is viewed as a significant advantage.

Future Opportunities and Synergies

The merger presents substantial opportunities to expand the deposit and asset franchise, especially in south India, while offering compelling synergies, particularly in deposits, technology, and scale-driven efficiencies over time. As the amalgamation progresses, both entities aim to leverage their combined strengths to enhance their market position and drive sustainable growth in the small finance banking segment.