AU Small Finance Bank and Fincare Small Finance Bank Merger Gets RBI Nod

On March 4, 2023, the Reserve Bank of India (RBI) granted its approval for the all-stock merger of AU Small Finance Bank (AUSFB) and Fincare Small Finance Bank (FSFB), valued at approximately USD 530 million. This merger marks a significant development in the relatively new small finance bank (SFB) sector in India.

Effective Date and Branch Integration

The effective date of the amalgamation has been set as April 1, 2023. From that day forward, all branches of FSFB will operate as branches of AUSFB, ensuring a smooth transition for customers and employees.

Legal Framework and Regulatory Powers

The merger scheme has been sanctioned under the powers vested in sub-section 4 of Section 44A of the Banking Regulation Act of 1949. This legal framework provides the RBI with the authority to approve such mergers and ensure compliance with regulatory requirements.

Shareholder Exchange and Equity Distribution

Under the terms of the deal, shareholders of the unlisted FSFB will receive 579 shares of the listed AUSFB for every 2,000 shares they currently hold. Post-merger, FSFB shareholders will collectively own approximately 9.9% equity in AUSFB.

Fresh Capital Infusion and Strategic Rationale

The promoters of FSFB have agreed to infuse an additional Rs 700 crore of fresh capital into the merged entity, subject to approvals from the RBI and the Competition Commission of India. This capital infusion aims to strengthen the financial position of the combined bank and support its growth plans.

The merger is strategically significant for AUSFB as it will enable the Jaipur-based lender to expand its presence in the Southern region of India and gain a foothold in the high-margin microfinance assets business. This complementary deal is expected to enhance AUSFB's overall market position and growth prospects.

Impact on Workforce and Business Lines

The merger is set to increase AUSFB's overall staff strength to over 15,000 employees, with approximately 10,000 employees dedicated to the microfinance vertical. This consolidation of resources will further strengthen AUSFB's operations and service delivery capabilities.

The RBI's approval of the AU Small Finance Bank and Fincare Small Finance Bank merger marks a significant milestone in the Indian financial sector. This strategic move is expected to enhance competition, improve financial inclusion, and provide customers with a wider range of banking products and services.