Credit and payments unicorn Slice announced its merger with Guwahati-based North East Small Finance Bank (NESFB), in a rare instance of a fintech entering the banking sector.
Bengaluru-based Slice, which also holds an NBFC licence, said it has received a no-objection certificate from the Reserve Bank of India (RBI) for the transaction. The merger will allow the combined entity “to better serve their shared mission and reach more consumers who currently lack access to basic banking services,” Slice said in a statement.
In 2021, the RBI allowed fintech firm BharatPe to buy 49% in Unity Small Finance Bank, as part of a rescue plan for Punjab and Maharashtra Cooperative (PMC) Bank.
Following the merger, Slice will cease to exist as a company. “All Slice entities, including its NBFC licence, will be merged with the combined banking entity,” a person aware of the development told Mint.
“Slice, being a fintech company, went through a rigorous amount of due diligence and all kinds of audits over the last 15 months before announcing this merger,” the person added. “Slice has been also working closely with the NESFB management to understand banking operations better, to understand where technology can play a big role, what kind redundancies and merger will take place, in order to take better control of how the management will run, post the transaction.”
As part of the process, Slice picked 5% in North East SFB last year “just to get comfort” and then over a period of time, it bought additional 5% stake earlier this year.
While the merger and shareholding details are yet to be known, the person quoted above said Slice as an entity is merging at a fair market value of ₹11,700 crore and NESFB at over ₹450 crore. “A large part of the value of Slice is coming from its NBFC,” the person claimed.
With Slice having over 50 shareholders and the small finance bank having 4-5 shareholders in total, a back-of-the-envelope calculation suggests that Slice shareholders will own about 95-97% stake in the merged entity; whereas the remaining 3-5% will be owned by North East SFB shareholders. The total shareholders in the combined banking entity is going to be 55-60.
This merger, pending requisite shareholders’ consent and other regulatory approvals, brings together Slice’s digital prowess and NESFB’s grassroots banking foundation, according to a Slice statement.
On the make-up of the board and management after merger, choice of CEO, and if there will be a new name for the combined entity, the person said these matters are expected to be decided later as there are some regulatory processes pending, including clearance from the National Company Law Tribunal (NCLT).
Mint has gathered that the RBI wanted this merger to be announced because as a banking entity, there are many stakeholders involved, including depositors, and lenders.
NESFB has been facing severe challenges due to asset quality deterioration owing to the floods in Assam last year and delayed fundraising plans.
Slice, which counts Tiger Global, Insight Partners, EMVC, Blume Ventures among its backers, was valued at about $1.5 billion in a funding round last year. It employs nearly 1,300 people. It is not clear whether there will be any impact on the workforce.
Slice did not respond to Mint queries.
It is not clear whether there will be any impact on the workforce.
Commenting on the merger, Slice founder and CEO Rajan Bajaj said in its statement, “We will further strengthen our risk underwriting through the use of technology and data, and always keep customers at the heart of our decisions. We see this as an opportunity to build a highly inclusive and responsible bank, offering an unparalleled experience, underpinned by robust risk management and strong governance.”
In the upcoming months, there will be an integration process with both entities working to ensure a smooth transition for all customers.
Earlier Slice used to issue credit over prepaid cards to students and young customers. However, after the RBI came up with a circular banning credit over PPI, all fintechs, including Slice had to stop issuing prepaid cards loaded with credit line.
The combined entity is expected to have a capital adequacy ratio of about 35-40%, which is above the RBI’s requirement.