AU Small Finance Bank in focus ahead of April 1 merger with Fincare SFB as analysts see sustainable growth
Upstox
2 min read • Updated: March 19, 2024, 2:45 PM
Summary
The merger between AU Small Finance Bank and Fincare Small Finance Bank will come into effect on April 1, 2024. Under the merger scheme, all branches of Fincare Small Finance Bank will function as a part of AU Small Finance Bank.
Shares of AU Small Finance Bank, which received approval from the RBI for a merger with Fincare Small Finance Bank earlier this month, rallied as much as 2.2% to hit the day's high of ₹582.40 apiece on the NSE on Tuesday, March 19.
The SFB stock has been in focus after it got approval from the bank regulator for merger with Fincare Small Finance Bank on March 4. Analysts are of the view that the merger will aid AU Small Finance Bank in embarking on a sustainable growth path, boosting profitability, and bolstering return ratios.
AU Small Finance Bank announced its merger plans in October 2023.
The merger between AU Small Finance Bank and Fincare Small Finance Bank will take effect on April 1. Under the merger scheme, all branches of Fincare Small Finance Bank will function as a part of AU Small Finance Bank after April 1, 2024.
Fincare Small Finance Bank branches will become outlets of AU Small Finance Bank from April 1, but the entire integration process may take another 9-12 months, according to the lender.
As part of the arrangement, the shareholders of Fincare Small Finance Bank will be allotted 579 equity shares of AU Small Finance Bank for every 2,000 fully paid-up equity shares.
The Reserve Bank gave its approval to merge Fincare Small Finance Bank into AU Small Finance Bank on March 4. AU Small Finance Bank aspires to become a universal bank or full-scale bank in the next 3-5 years, according to reports.
Market experts are of the view that the merger will aid AU Small Finance Bank in embarking on a sustainable growth path, boosting profitability, and bolstering return ratios.
As part of the strategic objectives for 2027, the AU Small Finance Bank management aims to achieve a compound annual growth rate (CAGR) of 23-25% for both liability and asset bases. It looks at augmenting the mix of high-yield, high-return on assets (ROA) portfolio from the current 70% to 72-75%.
The bank aims to maintain credit costs within the range of 60-70 basis points and provision for annual credit costs of 2.5-3% specifically for the Microfinance Institution (MFI) business. Furthermore, the bank endeavours to enhance return on assets (ROAs) to 1.8%.
AU Small Finance Bank shares were trading at ₹563.95 apiece, down 1.15% on the NSE at 2:45 pm.