The Reserve Bank of India (RBI) has approved the proposed merger of Fincare Small Finance Bank with AU Small Finance Bank. 

The merger is effective 1 April. All branches of Fincare Small Finance Bank will function as branches of AU Small Finance Bank.

In October, AU Small Finance Bank said it would bring Fincare Small Finance Bank into its fold in what would be the first merger of two such institutions. 

On 29 October, it said that the appointed date of the scheme would be 1 February 2024, or a date agreed to by both companies and approved by the RBI.

Under the merger agreement, shareholders of Fincare Small Finance Bank will receive 579 equity shares of AU Small Finance Bank for every 2,000 shares held.

AU Small Finance Bank, which started operations in April 2017, has assets worth Rs 1.01 lakh crore as of 31 December 2024.

Disha Microfin (which later became Fincare SFB after a merger with Future Financial Services) commenced operations in July 2017.

The merger will help AU Small Finance Bank add branches and gain access to different customer segments. It will also benefit from portfolio diversification with entry into microfinance, several cross-selling opportunities and a reduction in funding costs.

In its Q3 FY24 investor presentation, AU Small Finance Bank said that the merger would provide access to higher margin businesses of JLG lending and gold loans. It would also give AU SFB a footprint in Southern India. It expects its branch strength to increase by ~150 branches and a total of ~1,300 touch points.

"There was a gap in reaching small and marginal farmers but the merger will help in overcoming that," AU Small Finance Bank managing director and CEO Sanjay Agarwal had earlier told analysts.