PE-backed Fincare Bank to merge with listed Indian lender

The transaction will be structured as a share swap with 579 shares in Au SFB awarded for every 2,000 shares held in Fincare SFB, according to an investor presentation. The promoters of Fincare SFB will also make a capital infusion of INR 7bn. Existing shareholders in Fincare SFB will own approximately 9.9% of Au SFB.

True North and LeapFrog are the largest private equity investors in Fincare SFB with 4.6% apiece. TA and Tata own 2.5% and 1.2%, respectively. They also have exposure to another entity, Fincare Business Services (FBSL), which owns 78.6% of the bank. True North owns 34.2% of FBSL, while TA has 17.8%, Tata has 8.4%, and LeapFrog has 4.9%.

AVCJ Research has records of three investments in FBSL. TA, True North, Tata, LeapFrog, Small Industries Bank of India (SIDBI), Kotak Mahindra Old Mutual Life Insurance, and Edelweiss Tokio Life Insurance contributed INR 5bn in 2017. The same group subscribed to a rights issue one year later that generated proceeds of INR 980m.

True North then completed a partial exit in May 2021 when Motilal Oswal Private Equity paid USD 25m for a stake of undisclosed size.

Fincare SBF has 5.4m customers, and 93.6% of its microfinance loans are issued to borrowers in rural areas. Total deposits amount to INR 94.5bn, of which 79% are from retail customers. Gross advances stood at INR 105.4bn as of September. Microfinance loans accounted for 54% of the lending book, with 19% in micro business loans, 14% in affordable housing loans, and 10% in gold loans.

The bank has 1,292 outlets across 23 states and union territories, with nearly 15,000 employees. It is especially strong in South India, which is expected to complement Au SFB’s bias towards North and West India. The combined entity will have 2,334 outlets, 43,000 employees, and 9.8m customers.

Au SFB, which was known as Au Financiers until India’s small finance bank reforms opened up the sector, received several rounds of private equity funding ahead of its IPO in 2017. The bank now has a market capitalization of INR 445.3bn. Deposits and gross advances are INR 757bn and INR 650bn.

Fincare SBF generated INR 2.2bn in net profit for the most recent financial year, while Au SFB generated INR 7.89bn.

The merger still requires approval from both boards and from India’s central bank and competition regulator.

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• Topics
• South Asia
• Trade sale
• Financials
• India
• Exit
• Financial Services
• TA Associates
• True North
• LeapFrog Investments
• Tata Capital