In a significant development in the small finance banking sector, Fincare Small Finance Bank is set to merge into AU Small Finance Bank. The merger is expected to come into effect on February 1, 2024, pending necessary approvals. AU Small Finance Bank has already announced its approval of the merger in a regulatory filing. Under the terms of the merger, Fincare SFB shareholders will receive 579 shares in AU SFB for every 2,000 shares they hold in Fincare SFB.
Following the transaction, it is estimated that existing shareholders of Fincare SFB will retain approximately 9.9% ownership in AU SFB. However, the merger is subject to various conditions, including approval from shareholders of both banks, regulatory endorsements from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI), and a capital infusion of Rs 700 crore Fincare SFB’s promoters.
AU Small Finance Bank has confirmed that all employees of Fincare SFB will be integrated into the AU SFB family after the merger. The Managing Director & CEO of Fincare SFB is expected to become the Deputy CEO of AU SFB, while Divya Sehgal, a current director on Fincare SFB’s board, will join AU SFB’s board, further strengthening the leadership team.
Fincare SFB, as a digital-first small finance bank, offers a wide range of deposit and asset products to approximately 54 lakh customers, with nearly 93.6% of its microfinance loans being directed towards rural areas. The bank’s total deposits amount to Rs 9,453 crore, with 79% being retail deposits, and it has gross advances of Rs 10,541 crore. Fincare SFB operates through 1,292 banking outlets across 23 states and union territories, primarily in south India, with a dedicated team of 14,867 employees.
After the merger, the combined entity will have 2,334 touchpoints and serve around 98 lakh customers, employing about 43,000 personnel. The projected balance sheet size of the merged bank is expected to exceed Rs 1.1 lakh crores as of September 2023.
The management of AU SFB views this merger as a strategic move with several benefits. It highlights the complementary branch footprint as a means to establish a pan-India Small Finance Bank. The diversification of the portfolio, particularly through access to microfinance businesses focused on rural and financial inclusion, is seen as a significant advantage. The merger also presents opportunities for expanding the deposit and asset franchise, especially in south India, and offers synergies in deposits, technology, and scale-driven efficiencies over time.