- AU Small Finance Bank merger with Fincare SFB to be effective from April 1, 2024.
- Here is a question – whether Should you buy, sell or hold the stock?
- AU Small Finance Bank’s merger with Fincare Small Finance Bank is expected to help AU Bank achieve sustainable growth, boost profitability and support stronger return ratios, analysts said.
- AU Small Finance Bank, in October last year, announced the merger scheme with Fincare Small Finance Bank Ltd, which the Reserve Bank of India (RBI) approved earlier this month.
- The merger will take effect on April 1 and all branches of Fincare Small Finance Bank will function as branches of AU Small Finance Bank from that date.
- Under the merger agreement, shareholders of Fincare Small Finance Bank will get 579 equity shares of AU Small Finance Bank Ltd for every 2,000 fully paid-up equity shares they own.
- The management of AU Small Finance Bank has laid out strategic objectives for 2027 on a merged basis.
- These are growing liability and asset base at CAGR of 23-25%; increasing the mix of high yield, high ROA portfolio from 70% currently to 72-75%; maintaining credit costs in the range of 60-70 bps; providing for annual credit costs of 2.5-3% for MFI business and improving ROAs to 1.8%.
- It plans to achieve these objectives on account of calibrated credit card additions, higher incremental disbursement yields, successful execution of the Fincare merger and potential benefits of rate cuts given a higher share of the fixed rate book.
- Several of the brokerages feel that the merger with Fincare SFB will enable AU Bank to achieve sustainable growth, while stronger return ratios for Fincare will boost profitability, particularly as operating leverage improves. After the merger, the bank is expected to expand into new geographical areas and product segments, with robust growth in high-yielding Wheels, MFI, Gold and SBL segments.
- Further they feel that since Fincare is a rural-focused small finance bank with 85% of its advances qualifying under the priority sector, the merger will enable AU Bank to not only meet its PSL target but also generate PSLC income in the long run.
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