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# Shares of AU Small Finance Bank Fall as Board Approves Merger with Fincare Small Finance Bank

Shares of AU Small Finance Bank lost over 8 percent in intra-day deals on Monday, after the lender announced that its board has approved the merger with Fincare Small Finance Bank.

The announcement comes as AU Small Finance Bank aims to extend its footprint in southern India and enter the microfinance sector. The firm will acquire Fincare Small Finance Bank in an all-stock transaction valued at Ôé╣4,411 crore.

## How AI legalese decoder Can Help with the Situation

The AI legalese decoder can assist in understanding the intricacies of the merger between AU Small Finance Bank and Fincare Small Finance Bank. It can provide a simplified explanation of the legal jargon used in the regulatory filing, making it easier for shareholders to understand the terms and conditions of the merger. This tool can be especially valuable for individuals without a legal background, ensuring that all stakeholders have a comprehensive understanding of the transaction.

# Stock Falls to Lowest Level in 6 Months

The stock fell as much as 8.5 percent to its day’s low of Ôé╣630.90, marking its lowest level in the last 6 months. The stock is now over 20 percent away from its record high of Ôé╣794.95, hit on May 29, 2023.

# Performance Comparison with Nifty Bank Index

The stock has gained over 21 percent in the last 1 year and lost around 4 percent in 2023 YTD. In comparison, the Nifty bank index has risen around 5 percent in the last 1 year and is completely flat but in the red this year so far.

# Details of the Amalgamation Plan

Under the amalgamation plan, shareholders of Fincare Small Finance Bank will receive 579 equity shares of AU Small Finance Bank Ltd for every 2,000 fully paid-up equity shares they own. Following the merger, existing shareholders of Fincare SFB will approximately have a 9.9 percent stake in AU SFB.

# Conditions for Approval and Appointed Date

The scheme is subject to the approval of the respective shareholders of both companies, the Reserve Bank of India (RBI), and the Competition Commission of India (CCI). Additionally, a capital infusion of Ôé╣700 crores by the promoters of Fincare SFB is required. The appointed date of the scheme shall be 1 February 2024, or a date as may be fixed mutually by both companies and approved by RBI.

# Inclusion of Employees and Changes in Leadership

All employees of Fincare SFB will be included in the AU SFB family after the merger. The Managing Director & CEO of Fincare SFB will become the Deputy CEO of AU SFB. Divya Sehgal, a current director on Fincare SFB’s board, will join AU SFB’s board, further strengthening the leadership team.

# Strategic Rationale Behind the Merger

The key strategic rationale behind the merger includes the complementary branch footprint, diversification of portfolio, shared values, and compelling synergy potential. The merger aims to build a pan India Small Finance Bank, access rural and financial inclusion-focused microfinance businesses, and provide deposit, technology, and scale driven efficiencies over time.

# Background of AU Small Finance Bank and Fincare Small Finance Bank

Both banks were set up under an RBI policy from 2014. AU Small Finance Bank started operations in April 2017, while Fincare Small Finance Bank commenced operations in July 2017. Fincare SFB offers a broad range of deposit and asset solutions to its customers, with a total customer base of approximately 54 lakh.

# Expected Size and Performance of the Merged Entity

The merged entity is expected to serve approximately 98 lakh customers and employ around 43,000 people by the end of September 2023. It is projected to have a combined balance sheet size of more than Ôé╣1.1 lakh crores. Meanwhile, AU Small Finance Bank reported a net profit of Ôé╣401.8 crore in the September quarter, with a net interest income of Ôé╣1,249 crore.

# Current Status of Non-Performing Assets

The gross non-performing asset (NPA) ratio of AU Small Finance Bank improved to 1.76 percent in Q2FY24, from 1.91 percent in the preceding quarter. However, the net NPA ratio increased to 0.60 percent in the second quarter compared to 0.55 percent in the June 2023 quarter.

# CEO’s Outlook on Performance and Future Growth

Sanjay Agarwal, MD & CEO of AU Small Finance Bank, expressed confidence in the bank’s performance, citing growth across deposits, digital, and advances. He emphasized the focus on building low-cost retail deposits and the positive outlook for growth and market penetration in AU markets.

## How AI legalese decoder Can Help with the Situation

The AI legalese decoder can assist shareholders in understanding the financial performance of AU Small Finance Bank and Fincare Small Finance Bank. By analyzing the net profit, net interest income, and non-performing asset ratios, the AI legalese decoder can provide valuable insights into the banks’ financial health before the merger. This information can help shareholders make informed decisions regarding their investment in the merged entity.

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