Shares of AU Small Finance Bank declined nearly 9 per cent on Monday, marking their lowest level since mid-April after it announced the merger of Fincare Small Finance Bank Ltd. on Sunday via an exchange filing. The transaction is subject to the approval of the respective shareholders of both companies, the Reserve Bank of India, and India’s competition regulator.
As per the terms of the merger, shareholders of Fincare SFB will receive 579 shares in AU SFB for every 2,000 shares they hold in Fincare SFB. Following the transaction, it is expected that existing shareholders of Fincare SFB will maintain approximately 9.9 per cent ownership in AU SFB.
The completion of this transaction is subject to several critical conditions, including approval from the shareholders of both Fincare SFB and AU SFB, regulatory endorsements from the Reserve Bank of India (RBI) and the Competition Commission of India (CCI), and a capital infusion of Rs. 700 crores by the promoters of Fincare SFB.
AU SFB has confirmed that all employees of Fincare SFB will be included in the AU SFB family after the merger.
As part of this strategic merger, 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.
AU Small Finance Bank has presence in 21 states and three Union Territories with a strong presence in the western, northern and central India, the proposed merger will enhance its reach and distribution and provide the lender with presence in the southern parts of the country. Fincare is present in Andhra Pradesh, Telangana, Tamil Nadu and Karnataka.
Fincare Small Finance Bank is unlisted but has its Non-Convertible Debentures listed on the Bombay Stock Exchange.
As of September 30, Fincare Small Finance Bank had total assets worth Rs 14,777 crore, turnover of Rs 1,360 crore and net profit of Rs 219 crore. For the first half of the current financial year, Fincare had gross NPA of 1.52 per cent and Net NPA of 0.77 per cent.
On a proforma basis, the combined entity is likely to have 2,334 touchpoints, nearly 98 lakh customers and around 43,000 employees. It is also likely to have a combined balance sheet size of over Rs 1.1 lakh crore.
AU Small Finance Bank also reported results post market hours on Friday, where the company’s asset quality saw deterioration on a sequential basis. Gross NPA stood at 1.91 per cent from 1.76 per cent earlier, while net NPA rose to 0.6 per cent from 0.55 per cent in June. Slippages also rose by 10.1 per cent to Rs 349 crore from Rs 317 crore in June.
The lender’s net interest margin (NIM) stood at a 10-quarter low of 5.5 per cent, while the management has guided for that number to range between 5.7 per cent and 5.9 per cent going forward. Net profit for the quarter grew by 17 per cent year-on-year aided by higher other income, and Net Interest Income or NII grew by 15 per cent.
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