The Reserve Bank of India (RBI) has given its green light to the first ever merger between two small finance banks (SFBs) in India. Fincare Small Finance Bank (Fincare SFB) and AU Small Finance Bank (AU SFB) will amalgamate from April 1, 2024, creating a banking entity with a network of 2334 branches and a loan book of Rs 67,624 crore.
Benefits of the merger
The merger will bring together the strengths of both the banks and create synergies in terms of products, customers, geographies and technology. Fincare SFB, which started operations in 2017, has a strong presence in south India and focuses on microfinance and rural lending. AU SFB, which was founded in 2003 as a vehicle financier, has a diversified portfolio of retail, MSME and corporate loans, and operates mainly in north and west India.
The combined bank will have access to a larger customer base, especially in the underbanked segments of the population. It will also be able to offer a wider range of products and services, such as savings accounts, fixed deposits, insurance, mutual funds, credit cards and digital banking solutions.
The merger will also result in operational efficiencies and cost savings for the merged entity. The banks expect to achieve economies of scale, rationalize branch network, optimize human resources and leverage technology platforms. The merger will also enhance the capital adequacy and liquidity position of the bank.
Share swap ratio
As per the agreement between the two banks, shareholders of Fincare SFB will receive 579 equity shares of AU SFB for every 2,000 shares held. The swap ratio implies a valuation of Rs 2,995 crore for Fincare SFB, which is 2.3 times its book value as on December 31, 2023. The merged bank will have a market capitalization of Rs 70,619 crore, based on the closing price of AU SFB on March 4, 2024.
Regulatory approvals
The RBI has approved the merger under the powers contained in sub-section (4) of Section 44A of the Banking Regulation Act of 1949. The approval is subject to compliance with the terms and conditions stipulated by the RBI. Earlier in January 2024, the Competition Commission of India (CCI) had also cleared the merger proposal.
The merger is also pending approval from the shareholders and creditors of both the banks, the National Company Law Tribunal (NCLT) and other statutory authorities.
Future outlook
The merger of Fincare SFB and AU SFB is expected to create a strong and competitive banking institution that can cater to the diverse needs of customers across India. The merged bank will have a balanced mix of assets and liabilities, a robust capital base and a digital-first approach. The bank will also benefit from the leadership and expertise of both the management teams.
The merger is in line with the vision of the RBI to consolidate the small finance bank sector and create viable and sustainable entities that can contribute to financial inclusion and economic development.
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