AU Small Finance Bank, Fincare Small Finance Bank merge

HYDERABAD: The Board of Directors of AU Small Finance Bank Ltd (AU SFB) and the Board of Directors of Fincare Small Finance Bank Ltd (Fincare SFB), at their respective meetings held earlier on Sunday, approved an all-stock merger of AU SFB and Fincare SFB.

The scheme of amalgamation, under Section 44A of the Banking Regulation Act, 1949, is subject to the approval of shareholders of AU SFB and Fincare SFB respectively, Reserve Bank of India under the Banking Regulation Act and the Competition Commission of India.

Upon obtaining the required approvals, Fincare SFB shall merge into AU SFB and Shareholders of Fincare SFB shall receive shares of AU SFB in exchange for their shares in Fincare SFB at the approved share swap ratio. All employees of Fincare SFB shall become part of the AU SFB family.

Merger Terms

The Boards of AU SFB and Fincare SFB respectively considered the results of due diligence of key aspects of each other’s business operations.

According to terms, Fincare Business Services Ltd (FBSL), promoter of Fincare SFB, shall infuse Rs 700 crore into Fincare SFB prior to the completion of the merger.

Bansi S Mehta Valuers LLP, and RBSA Valuation Advisors LLP, the independent valuers appointed by AU SFB and Fincare SFB respectively, have recommended a share exchange ratio, which has been accepted by the respective Boards. JM Financial Limited provided a Fairness Opinion to AU SFB on the share exchange ratio and IIFL Securities Ltd. provided a Fairness Opinion to Fincare SFB.

Accordingly, Fincare SFB shareholders shall receive 579 shares in AU SFB for 2,000 shares of Fincare SFB. Post merger, existing shareholders of Fincare SFB shall hold nearly 9.9 per cent in AU SFB.

ICICI Securities Limited and Arpwood Capital Pvt Ltd acted as Financial Advisors to Fincare SFB on the transaction and Ambit Pvt Ltd and Mirae Asset Capital Markets (India) Pvt. Ltd. Acted as Financial Advisors to AU SFB. AZB & Partners acted as Legal Advisors to AU SFB and Anagram Partners acted as Legal Advisors to Fincare SFB. KPMG and PwC acted as Diligence Advisors to AU SFB and Fincare SFB respectively.

Rajeev Yadav, the MD & CEO of Fincare SFB, will be appointed Deputy CEO of AU SFB post-merger. He will report to Sanjay Agarwal, MD&CEO of AU SFB. Yadav will continue to lead the Fincare unit of AU SFB, which will house most of the businesses of Fincare SFB. Additionally, he will jointly lead the IT & Digital unit of AU SFB with the MD & CEO of AU SFB, to ensure smooth IT integration post-merger. In his new role, Yadav will be an invitee to Board meetings of AU SFB.

Divya Sehgal, Nominee Director on Fincare SFB’s Board will join the Board of AU SFB to ensure smooth integration and continuity post-merger.

Uttam Tibrewal, Executive Director at AU SFB at present, will be elevated to Executive Director & Deputy CEO of AU SFB in the merged entity.

Strategic Rationale

This is a strategic, growth-oriented merger of two strong SFBs with common charter, shared values, complementary geographic footprint, and product basket to create a truly pan India retail banking franchise. The merged entity will have more than 98 lac customers, more than 43,000 employees, and 2,334 touchpoints across 25 states and union territories.

The merger aids diversification of AU SFB’s portfolio with addition of rural, inclusion focused microfinance, mortgages, and gold loan businesses of Fincare SFB, bolstering its financial inclusion charter with a focus on micro entrepreneurs and small enterprises. The merged entity will leverage Fincare SFB’s distribution network in rural and semi-urban and AU SFB’s strong product and digital capabilities to grow its deposits and lending franchise.

The merger will deliver significant synergies especially in deposits, technology and scale driven efficiencies and over time will be accretive to key financial metrics. Besides, both banks have received the ‘Great Place to Work’ certification from GPTW Institute continuously from 2021 to 2023 and see people & culture alignment as core to the success of the merger.

Sanjay Agarwal, MD & CEO, AU SFB, said, “I am delighted on the coming together of two successful and well-governed SFB franchises with common charter of promoting financial inclusion. This is not just a merger of two entities, its a union of shared values, common goals, and a vision for the future. Rajeev and team are one of the most experienced and seasoned MFI teams in the country who have over the years, built the business ground up despite multiple challenges and also a strong tech-enabled SFB franchise. We welcome all Fincare employees as part of the AU SFB family and are excited about the journey ahead of us”.

Rajeev Yadav, MD & CEO, Fincare SFB, said, “Our foundation is that of a leading financial inclusion franchise, customer-friendly products, and strong digital backbone. The proposed merger of two successful institutions will create a lot of synergies. Our customers stand to gain from the merger, with expanded presence and a full suite of products that cater to their specific requirements. This merger is a defining milestone in our journey towards facilitating financial inclusion in India, and by joining hands with AU SFB’s strong franchise led by Sanjay and his team, we are confident of building a world-class bank with a robust balance sheet and a truly national franchise”.

R V Verma, Chairman, AU SFB said, "We are excited to announce the merger of AU Small Finance Bank and Fincare Small Finance Bank, which brings together two strong, well-run and well-governed SFBs. This strategic merger capitalizes on our complementary geographic footprint and product offerings, enabling us to create a truly pan-India retail banking franchise. We anticipate compelling synergies, particularly in deposits, technology, and scale-driven efficiencies over time, which will benefit our customers and shareholders".

Pramod Kabra, Non-Executive Director and former Chairman, Fincare Small Finance Bank, said “It represents a transformative merger between two exceptional banks, both known for their industry-leading growth and profitability. With an expanded scale, a diverse portfolio, broader market coverage, and a distinctive blend of professional expertise and entrepreneurial spirit, the merged entity is poised to deliver exceptional value to its customers while providing a fulfilling and rewarding careers for all its employees.”

True North, a key investor at Fincare SFB shared the enthusiasm for the merger. Expressing his excitement at the potential synergies, Divya Sehgal, also Partner, True North said “It has been a pleasure to see the journey of Fincare since 2010, starting from merger of two MFIs, receipt of small finance bank license and then the building of a bank. The future will allow the merged entity to become a stronger, larger and even more admired institution”.

Uttam Tibrewal, Executive Director, AU Small Finance Bank,"The merger between AU Small Finance Bank and Fincare Small Finance Bank is a significant step towards strengthening our presence and delivering enhanced financial services to our customers. By combining the strengths of both banks, we are well-positioned to diversify our portfolio and expand our reach, especially in rural and semi-urban areas. This merger underscores our commitment to financial inclusion and creating a more robust and efficient banking ecosystem”.