RBI Approves Merger Of Fincare SFB With AU Small Finance Bank

The Reserve Bank of India has approved the merger of Fincare Small Finance Bank Ltd. with AU Small Finance Bank.

The merger comes into effect on April 1 and has been approved under Section 44A of the Banking Regulation Act, 1949.

With this, all branches of Fincare Small Finance Bank will function as branches of AU Small Finance Bank.

On Oct. 29, the board of AU Small Finance Bank, in its meeting, considered and approved the scheme of amalgamation.

As a part of the merger, shareholders of Fincare Small Finance Bank would receive 579 equity shares of AU Small Finance Bank for every 2,000 shares held.

However, back then, the transaction was subject to approval from the RBI and the Competition Commission of India.

AU SFB had also mentioned that the merger would allow it to leverage "significant complementarities" between both lenders. This included branch networks, several product offerings and customer segments.

Along with this, the move would also benefit AU SFB in terms of pan-India distribution franchises, portfolio diversification with entry into microfinance, several cross-selling opportunities and a reduction in funding costs.

Through this transaction, there would also be management changes. As per the agreement, Fincare SFB's MD and CEO, Rajeev Yadav, will become the Deputy CEO at AU SFB.

In addition, Divya Sehgal, currently a director on the Fincare SFB board, will join AU SFB's board.

In an analyst call in October, post-merger announcement, Sanjay Agarwal, MD & CEO of AU Small Finance Bank, said that post-merger, the MFI would be 8% of the balance sheet and the intent is to keep it at 10%.

The return-on-asset from MFI was expected to be around 3%–4%, according to Agarwal.

"There was a gap in reaching small and marginal farmers but the merger will help in overcoming that," he told analysts.

He also said that AU SFB intends to benefit from Fincare's gold loan capability and gross advances.

In its Q3 FY24 investor presentation, AU Small Finance Bank said, "...merger will provide us access to higher margin businesses of JLG lending and gold loans whereas also giving us a footprint in Southern India."

It also expects its branch strength to increase by ~150 branches and a total of ~1,300 touch points.

While the merger will be accretive to AU Small Finance Bank across margins, profitability and book value, it expects other incidental impacts of ~80 crore in the quarter when the merger gets completed.

In Q3, AU SFB's net interest income was up 15% year-on-year to Rs 1,325 crore. Other income was up 52% year-on-year to Rs 450 crore, on account of fee income from credit cards and third-party product distribution.

The deposits grew 6% quarter-on-quarter and 31% year-on-year to Rs 80,120 crore. The gross advances were up 20% year-on-year to Rs 67,624 crore.

Asset quality as of December 31 dipped, as the gross non-performing asset ratio rose 7 basis points sequentially to 1.98%.