AU Small Finance Bank tanks 8% amid merger announcement with Fincare SFB

In a major development in the small finance banking space, Fincare Small Finance Bank (Fincare SFB) will merge into AU Small Finance Bank (“AU SFB”), effective from February 1, 2024. Amid the development, shares of AU Small Finance Bank Ltd tanked 7.92% or 54.65 points to ₹635.10 on the BSE today. The shares opened marginally up at ₹689.90 in the early morning trade but soon fell to an intra-day low of ₹630.50, taking its m-cap down to ₹42,409.13.

In a late evening regulatory filing on Sunday, AU SFB says the merger will be effected through a share swap transaction, and shareholders of Fincare SFB will receive 579 shares in AU SFB for every 2,000 shares held in Fincare SFB. Post the transaction, existing shareholders of Fincare SFB will hold 9.9% in AU Small Finance Bank.

After the board approval, the deal will go through approval for shareholders approval (for both Fincare SFB and AU SFB); and RBI and CCI. The transaction completion is also subject to capital infusion of ₹700 crore by promoters of Fincare SFB.

AU says all Fincare SFB customers will have seamless integration into the AU SFB and benefit from a wider product and service offering. They will be onboarded as part of AU post-merger, with MD & CEO of Fincare SFB to be designated Dy CEO of AU SFB post merger.

Divya Sehgal, who is the current director of FincareSFB’s board, will be joining the AU SFB’s board. The bank has onboarded Aon to bring best global HR best practices for people integration.

In terms of business, Fincare SFB has 54 lakh customers with 93.6% of microfinance loans located in rural areas. The lender has total deposits of ₹9,453 crore of which 79% are retail, with the gross advances of ₹10,541 crore consisting of microfinance (54%), micro business loans (MBL) (19%), affordable housing loans (14%) and gold loans (10%).

The lender boasts of a network of 1,292 banking outlets across 23 states and union territories, with stronger presence in South India, and an employee strength of 14,867. The long term credit rating stands at ICRA A; Positive and CARE A; Stable.

In terms of performance, the merged entity will have 2,334 touchpoints, 98 lakh customers, 43,000 employees and combined balance sheet size of ₹1.1 lakh crore as on September 30, 2023.

In its rationale behind the deal, AU says the merger deal is complementary as it'll help the lender become a "truly pan India Small Finance Bank". It'll also help diversification of portfolio, with access to rural and financial inclusion focused microfinance business."

AU Small Finance Bank, which has the highest m-cap among small finance banks in India, has total assets of ₹95,977 crore, net worth of ₹11,763 crore as of September 30, 2023. Its turnover was ₹9,240 crore, profit was ₹1,428 crore for the year ended on March 31, 2023.

Fincare Small Finance Bank has assets worth ₹14,777 crore, a net worth of ₹1,539 crore, a turnover of ₹1,360 crore and a profit of ₹219 crore as of September 30, 2023. Its total assets were worth ₹12,467 crore, while net worth was ₹1,314 crore, turnover was ₹1,970 crore, and profit was ₹104 crore for the year ended on March 31, 2023.