On Sunday, Mumbai's AU Small Finance Bank Ltd announced it would become the first small bank to merge with another small bank, Fincare Small Finance Bank.
If the merger goes through as planned, Fincare Small Finance Bank shareholders will receive 579 equity shares of AU Small Finance Bank Ltd for every 2,000 of their fully paid-up equity shares.
Under an RBI policy implemented beginning in 2014, these banks were established to promote financial inclusion by serving as an outlet for savings and expanding access to credit for micro and small businesses, farmers, and other organizations in the informal economy. Disha Microfin (which later became Fincare SFB after a merger with Future Financial Services) began operations in July 2017, but AU Small Finance Bank did not do so until April 2017.
In a regulatory filing made late on Sunday, AU SFB said, "The scheme is subject to approval of the respective shareholders of the transferor company (Fincare Small Finance Bank Ltd) and transferee company (AU Small Finance Bank Ltd), the Reserve Bank of India (RBI), and the Competition Commission of India (CCI)."
According to the statement, the effective date of the program will be February 1, 2024, or such later date as may be agreed upon by the participating corporations and approved by the Reserve Bank of India.
AU Small Finance Bank had total assets of 95,977 crore and net worth of 11,763 crore as of September 30, whereas Fincare Small Finance Bank had total assets of 14,777 crore and net worth of 1,539 crore. Fincare SFB's intention for a share sale was approved by the Securities and Exchange Board of India (Sebi) last month, despite the fact that AU SFB shares are already traded on the public exchanges.
According to the statement, the banks' confidence in the merger is "founded on leveraging of the significant complementarities that exist between both the small finance banks, particularly relating to branch network, product offerings, and customer segments."
"This revenue synergy-led and growth-oriented amalgamation, adopting best practices of banking, technology, governance, and prudence from both banks, is expected to result in a superior platform benefiting from efficiencies of size and scope over time for all stakeholders, including customers, employees, and shareholders," it said.
For example, as of September 30, 2018, promoters owned 25.49 percent of AU Small Finance Bank, while as of March 31, 2018, they owned 78.58 percent of Fincare.
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