The shareholders of Fincare Small Finance Bank will receive 579 equity shares of AU Small Finance Bank for every 2,000 shares held. The merger would be effective from February 1, 2024, according to a regulatory filing to stock exchanges late Sunday.
The deal is subject to Fincare Business Services, which owns about 78% in Fincare SFB, infusing Rs 700 crore of capital into the bank before the merger. Fincare Business Services is owned by multiple private equity funds including the home-grownTrue North. Shareholders of Fincare Business will end up holding about 8% share in the merged entity.
This exercise would pave the way for Jaipur-headquartered AU’s entry into microfinance business which is missing in its product list till now. It would also provide the bank a stronger foothold in Southern India where it has merely 2% of its branches.
“We are from the north and they are from the south, we will work together. This merger allows us to go to the last mile of society where we were not there till now,” Sanjay Agarwal, promoter and managing director at AU, said Monday.
“One thing we were missing is microfinance which we are getting now. We have to understand the south market emotionally and culturally,” he said.
AU is the largest small finance bank with Rs 11,763 crore net worth and a balance sheet size of Rs 95,977 crore at the end of the second quarter to September 30. It has 476 branches and 1042 touch points, heavily skewed in favour of Rajasthan, Maharashtra and Punjab. In contrast, about half of Fincare’s 1300 touchpoints are in South India.The Bengaluru-headquartered Fincare had Rs 10541 crore of gross loan portfolio at the end of June with microfinance contributing 54% of it.
At the end of September, Fincare’s gross NPA was 1.6% while for AU it was 1.9%.
When the Reserve Bank of India offered 10 small finance bank licences in 2015 to push financial inclusion, AU was the only asset-backed lender without microfinance lineage to receive it. Out of the other nine, eight licences were given to microfinance lenders and another to a local area bank.
AU started operation from Jaipur as a non-bank vehicle financier in 2003. AU’s gross advances stood at Rs 65,029 crore at the end of September with 95% secured loan assets and vehicle loans accounting for about one-third of it. AU started its banking operation in April 2017.
Agarwal did not rule out the bank’s eventual evolution into a universal bank but said the call will be taken in the next 18 months. “We will take calls one at a time. This merger gives us the confidence that we will be universal and inclusive. It’s a test of whether we can merge well,” he said.
With this development, Fincare’s proposed IPO has been shelved, managing director Rajeev Yadav said.
In the merged entity, Yadav will be appointed deputy CEO and will report to Agarwal. Uttam Tibrewal, currently executive director at AU, will be elevated to executive director & deputy CEO. Divya Sehgal, nominee director on Fincare SFB’s board will join the board of AU to ensure smooth integration and continuity post-merger.
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