Fincare Small Finance Bank To Merge With AU Small Finance Bank

Fincare SFB shareholders will receive 579 AU SFB shares for every 2,000 shares held.

<div class="paragraphs"><p>AU Small Finance Bank's Bidasar branch. (Source: Bank's official FB page)</p></div>
AU Small Finance Bank's Bidasar branch. (Source: Bank's official FB page)

In a late Sunday announcement to the exchanges, AU Small Finance Bank said that its board had approved a merger with IPO-bound Fincare Small Finance Bank.

"It is hereby informed that the board of directors of AU Small Finance Bank Limited, at its meeting held today on October 29, 2023 has inter alia, considered and approved the scheme of amalgamation for the amalgamation of Fincare Small Finance Bank Limited into and with AU Small Finance Bank Limited," the exchange notice read.

As part of the merger, shareholders of Fincare Small Finance Bank shall receive 579 equity shares of AU Small Finance Bank for every 2,000 shares held. The transaction is subject to approval from Reserve Bank of India and Competition Commission of India.

The appointed date for the amalgamation is set for Feb. 1, 2024.

Established as a vehicle finance company in 1996, AU Financiers received an in-principle nod from the RBI to operate a small finance bank in 2015. The bank formally started operations in 2017.

According to AU Small Finance Bank, this merger will allow it to leverage on "significant complementarities" between the two lenders. This includes areas like branch network, product offerings and customer segments. Other benefits include:

  • Pan-India distribution franchise.

  • Portfolio diversification with entry into microfinance.

  • Cross-selling opportunities and a further reduction in funding cost.

Fincare Small Finance Bank reported Rs 14,777 crore worth total assets as of Sept. 30, and a networth of Rs 1,539 crore. According to last available data, Fincare Small Finance Bank had a deposit base of Rs 6,500 crore and advances worth Rs 7,000 crore as of March 2022. It has a network of 1,231 banking outlets, which included 373 business correspondent outlets.

In May, the lender filed a draft red herring prospectus with the markets regulator for an initial public offering. It was approved last month. Through the IPO, the small finance bank intended to raise Rs 625 crore through fresh issuance of shares and also an offer for sale of 1.7 crore shares to be sold by its existing shareholders.

The selling shareholders included promoter Fincare Business Services Ltd, Wagner Ltd, True North Capital, Mauritius-based fund house Indium, among others.

As of Sept. 30, AU Small Finance Bank reported total assets worth Rs 95,977 crore and a networth of Rs 11,763 crore. While outstanding advances rose 24% from a year ago to above Rs 65,000 crore, the deposit base was up 30% to Rs 75,743 crore. Its net profit for the quarter rose 17% year-on-year to Rs 402 crore, largely owing to a 72% rise in other income.

Asset quality as of September 30 dipped, as gross non-performing asset ratio rose 15 basis points sequentially to 1.91%. The bank's provisions jumped over twofold during the quarter to Rs 114 crore. Out of the total provisions, the bank has set aside Rs 96 crore against contingency and standard restructured books.

The lender's capital adequacy ratio stood at 22.43% at the end of the second quarter, compared to 23.36% a year ago. AU Small Finance Bank had 476 branches, 227 asset centres and 325 unbanked rural centres at last count.