AU Small Finance Bank board approves merger with Fincare SFB; stock falls 8%

The firm will acquire Fincare Small Finance Bank in an all-stock transaction valued at ₹4,411 crore. The move is aimed at extending the bank’s footprint in southern India and entering the microfinance sector, it said.

The stock fell as much as 8.5 percent to its day’s low of ₹630.90. This is its lowest level in the last 6 months. The stock is now over 20 percent away from its record high of ₹794.95, hit on May 29, 2023.

The stock has gained over 21 percent in the last 1 year and lost around 4 percent in 2023 YTD. In comparison, the Nifty bank index has risen around 5 percent in the last 1 year and is completely flat but in the red this year so far.

Under the amalgamation plan, shareholders of Fincare Small Finance Bank will get 579 equity shares of AU Small Finance Bank Ltd for every 2,000 fully paid-up equity shares they own.

Following the merger, existing shareholders of Fincare SFB will approximately have a 9.9 percent stake in AU SFB.

“The scheme is subject to the approval of the respective shareholders of the transferor company (Fincare Small Finance Bank Ltd) and transferee company (AU Small Finance Bank Ltd), the Reserve Bank of India (RBI), and the Competition Commission of India (CCI) and a capital infusion of ₹700 crores by the promoters of Fincare SFB,” AU SFB said in a regulatory filing late on Sunday evening.

It added that the appointed date of the scheme shall be 1 February 2024, or a date as may be fixed mutually by both companies and approved by RBI.

AU SFB has also confirmed that all employees of Fincare SFB will be included in the AU SFB family after the merger.

It further informed that the Managing Director & CEO of Fincare SFB will become the Deputy CEO of AU SFB after the merger. Additionally, Divya Sehgal, a current director on Fincare SFB’s board, will join AU SFB’s board, further strengthening the leadership team.

The management further highlighted that the key strategic rationale behind the merger includes the complementary branch footprint building a pan India Small Finance Bank; diversification of portfolio with access to rural and financial inclusion-focused microfinance businesses; shared values, common regulatory regime and experienced team providing deep domain expertise; and compelling synergy potential especially in deposit, technology, and scale driven efficiencies over time.

Both these banks were set up under an RBI policy from 2014. While AU Small Finance Bank started operations in April 2017, Disha Microfin (which later became Fincare SFB after a merger with Future Financial Services) commenced operations in July 2017.

Fincare offers a broad range of deposit and asset solutions to its customers, with a total customer base of approximately 54 lakh. It has a strong presence in South India, with 14,867 employees. The bank’s total deposits are ₹9.453 crore and gross advances are at ₹10.541 crore. It has 1,292 banking branches in 23 states and Union territories and is expected to have a total branch count of 2,334 by the completion of the merger.

The merged entity is expected to serve approximately 98 lakh customers and employ around 43,000 people by the end of September 2023, with a combined balance sheet size of more than ₹1,1 lakh crores, informed the exchange filing.

Meanwhile, as per the September quarter, AU Small Finance Bank had total assets of ₹95,977 crore and a net worth of ₹11,763 crore, while Fincare Small Finance Bank had total assets of ₹14,777 crore and a net worth of ₹1,539 crore.

In the September quarter, AU Small Finance Bank reported a net profit of ₹401.8 crore, up 17.3 percent versus ₹343 crore reported in the year-ago period. Its net interest income (NII) came in at ₹1,249 crore in the September 2023 quarter, higher by 15.3 percent as against ₹1,083.4 crore reported in the corresponding period of the last fiscal.

The gross non-performing asset (NPA) ratio of AU Small Finance Bank improved to 1.76 percent in Q2FY24, from 1.91 percent in the preceding quarter.

The net NPA ratio, however, increased to 0.60 percent in the second quarter as compared to 0.55 percent in the June 2023 quarter.

“Our performance in Q2FY24 was resilient and sustainable with growth across deposits, digital, and advances. This resilience is further complemented by the positive outlook in AU markets, where there are promising prospects for growth and market penetration. Our key strategic focus is on building low-cost retail deposits, even in the current environment of elevated costs and intense competition,” Sanjay Agarwal, MD & CEO, of AU Small Finance Bank said.

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Updated: 30 Oct 2023, 12:20 PM IST