Padmaja Reddy, founder and former head of Spandana Sphoorty Financial, has acquired Kolkata-based Rajshree Tracom Pvt Ltd, an old non-banking finance company, to mark her return to the business of small loans. The NBFC will be renamed Keertana Finserve and will focus on gold loans, MSME loans and loans against property (LAP). In an exclusive interview on Monday, Reddy told Moneycontrol she has charted out an ambitious plan to tap the small-loan market.
Moneycontrol was the first to report on Reddy’s plan to float a new NBFC with former colleagues, on November 24.
Reddy has personally invested Rs 210 crore in the new company already, through a mix of equity and debt. The firm has an existing balance sheet of Rs 250 crore, mainly in gold loans, and has ambitious expansion plans, said Reddy.
“In microfinance what happens is despite the hard work you do, every three years, there is a cycle. Right now, we have chosen this model very carefully so that we don’t have to look back. We have to build a very scalable and sustainable organisation,” said Reddy.
The company has a total loan book of Rs 250 crore at this point, comprising Rs 225 crore in gold loans and the rest in MSME loans.
Reddy plans to raise the total assets under management to Rs 2,000 crore by 2023 and to Rs 4,000 crore by 2025.
Reddy to take on MD & CEO role
The new company has written to the Reserve Bank of India (RBI) seeking the regulator’s approval to appoint Reddy as the managing director and chief executive officer of Keertana Finserve and approval is expected in two weeks, she said.
The new NBFC will offer loans with an average ticket size of Rs 4-5 lakh and gold loans with smaller ticket sizes of Rs 50,000 and above. It will start out by focusing on Andhra Pradesh and Telangana, and may later look at other geographies.
Reddy is a veteran of the Indian microfinance sector and has over 20 years’ experience. She founded Spandana Sphoorty and scaled it up to make it one of the largest MFIs in the country.
Reddy’s decision to float a new NBFC comes after she was forced to resign from Spandana Sphoorty. In early November, she quit the firm saying that she was not stepping down by choice but because the Board didn’t extend her contract. Reddy also said that she opposed the sale of the microlender to Axis Bank at a throwaway price, which according to her is a third of the valuation of other companies.
End of Reddy era in Spandana Sphoorty
According to a letter shared with her colleagues, Reddy wanted to continue as the MD of Spandana Sphoorty but her contract was not renewed by the Board.
In 2010, when the Indian microfinance sector was affected by an industry-wide crisis, Spandana Sphoorty was among the lenders that took a major hit. The company was among the microlenders admitted into the corporate debt restructuring (CDR) process.
As the founder, Reddy spearheaded the MFI’s recovery efforts through one of the worst phases of the business in India. Spandana Sphoorty had around 25 percent market share in Andhra Pradesh, above Share Microfin (23.3 percent) and the erstwhile SKS Microfinance (around 17 percent) as of November 2010. The MFI’s loan book had plunged to around Rs 1,000 crore after the restructuring. But, Reddy and her team grew it to around Rs 8,000 crore during the revival phase.
Differences with key investors
Spandana Sphoorty emerged from the crisis after the CDR process but things were never the same after the entry of new investors such as Kedaara Capital, said people in the know. “There were differences from the start on operational matters and, more recently, on valuation,” said a senior microfinance industry official, who didn’t want to be named.
Kangchenjunga Ltd, backed by private equity fund Kedaara Capital, is the biggest shareholder in the MFI and had a stake of 45.5 percent at the end of September 2021. Insiders say Reddy’s exit was the culmination of prolonged differences between the Board and the founder. Discussions are ongoing between Reddy and Kedaara Capital for a settlement between the two parties.
Spandana Sphoorty’s total assets under management stood at around Rs 7,390 crore as of June end.