Exclusive | Spandana Sphoorty founder Padmaja Reddy to float new NBFC with former colleagues

Padmaja Reddy will be among the key shareholders of the proposed NBFC initially and may later take up a senior management role. (Illustration: Suneesh Kalarickal)

Padmaja Reddy, founder and former head of Spandana Sphoorty Financial, is planning to float a new non-banking finance company (NBFC) teaming up with a few former senior management colleagues. Reddy  recently resigned from Spandana following major differences with the Board.

The new company was incorporated around three to four days ago and the promoters will soon apply to the Reserve Bank of India (RBI) for a licence, according to two people familiar with the development.

They declined to be named.

Reddy will be among the key shareholders of the proposed NBFC initially and may later take up a senior management role once the entity starts operations.

The new entity may start operations as a business correspondent and later enter lending operations once it receives the required permissions.

“There will be a few senior colleagues of Reddy who will join her in floating the company. It will entirely focus on secured loans with a major thrust on gold loans and loan against properties,” said one of the persons quoted above.

The plan

The new NBFC will offer loans with an average ticket size of Rs 4-5 lakhs and gold loans at smaller ticket sizes of Rs 50,000 and above. The new entity will start with a focus on Andhra Pradesh and Telangana, and may later look at other geographies.

Padmaja Reddy is a veteran in the Indian microfinance sector with over 20 years of experience. Reddy 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. 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 selling of the microlender at a throwaway price to Axis Bank, which according to her is one third of valuation of other companies.

End of Padmaja era in Spandana  

According to a letter shared to her colleagues, Reddy wanted to continue as MD of Spandana but her contract was not renewed by the Board.

In 2010, when 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 major microlenders that were admitted to the corporate debt restructuring (CDR).

The founder—Padmaja Reddy—spearheaded the recovery efforts through one of the worst phases of Indian microfinance. Spandana had around 25 per cent market share in AP above Share Microfin (23.3 per cent ) and erstwhile SKS Microfinance (around 17 per cent) as on  November, 2010. Its loan book had plunged to around Rs 1,000 crore post restructuring. But, Reddy and her team grew it to around Rs 8,000 crore during the revival phase.

Differences with key investors

Spandana emerged out the crisis post the CDR but things never remained the same after the entry of new investors such as Kedaara Capital, said the people quoted above. “There were differences from the start on operational matters and more recently on the valuation,” said a senior microfinance industry official who didn’t want to be named.

Insiders say Reddy’s exit was the culmination of a prolonged differences between the Board and the founder.

Private equity fund Kedaara Capital-backed Kangchenjunga Ltd is the biggest shareholder in the MFI with a stake of 45.5% at the end of September.

Spandana Sphoorty’s total assets under management stood at around Rs 7,390 crore as of June end.