Spandana Sphoorty founder-board battle intensifies as Reddy questions long list of consultants, collection efficiency figures

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 managing director of microfinance firm Spandana Sphoorty, has highlighted the appointment of multiple consultants by the new management and the factual accuracy of the collection efficiency figures, intensifying an ongoing battle between her and the board.

“Collection Efficiency for Q2 of FY22 and Sep 21 month has been reported as 97% and 99% respectively excluding pre-payments. Collections include overdue collections (which was majorly funded by new loan disbursements), but, however, demand includes neither overdue demand nor the demand of 22.6% of loans, that were restructured,” Reddy said in an email sent to various stakeholders in the firm.

“These numbers are false as the Actual Collection efficiency excluding overdue collections (funded by new loan disbursements) even after not considering the demand of 22.6% of the loans restructured stands at 92.5% and 92.4% for the full quarter (Q2) and for full month of Sep. If the demand of restructured loans is considered, CE for the quarter was 75.7%,” Reddy said.

Appointment of consultants

Reddy also questioned the long list of consultants employed by the new management. “It is evident from the last twenty days that the worst thing that can happen to a Micro Finance Company is the Private Equity Fund managing the business. While they don’t want to dirty their hands, more than 10 Consultants are engaged in twenty days’ time to help in them in doing everything,” Reddy said.

“17 Consultants and 5 member Team from Kedaara (majority shareholder) to do the work done by two individuals Padmaja Reddy and Feroz Khan,” said Reddy in the email. “I could foresee all of this, when I was asked to leave the Company.  My worry is to see the current fate of the Company, which was built over 23 years sacrificing my life,” said Reddy, adding, “It takes decades to build an institution and can be destroyed in no time.”

Moneycontrol has seen the email.

“To conceal the different Consultants and Individuals they are meeting with, part of the head office has been shifted from the current premises to Kondapur White Fields,” Reddy said in the email.

She pointed out that the company is now spread across three premises, Ramky Selenium in Gachibowli, Whitefields, Kondapur, and Kapil Towers, also in Gachibowli.

Reddy, in the email, further said there has been no loan disbursement from November 1 to date. “If the same situation continues for one more month, Collection Efficiency which is at less than 80% in Nov could get drastically impacted. The only Risk management measure they know is to stop loan disbursement. Unfortunately, they don’t understand on how this can backfire,” she said.

“We get approximately 3,000 insurance claims a month.  Processing of insurance claims too has come to standstill.  Not even a single insurance claim has been sent to the Insurance Company since 2nd November,” Reddy said.

Spandana Sphoorty response

Responding to an email questionnaire sent by Moneycontrol, Spandana Board of Directors said the board is working diligently to ensure a smooth transition that will continue to build on a fundamentally strong business.

The Board is in touch with all stakeholders to address any concerns. It is unfortunate that Ms. Reddy who resigned as MD on November 2, 2021 and continues to be a director is issuing such communications, the Board said in its statement.

“While it is possible to assume she is disgruntled at her term as MD not being extended from May 2022 when her current employment contract expires, her resigning immediately on being told about the Board’s decision not to renew her employment agreement, and then making such statements is, in the company’s opinion, uncalled for and potentially harmful to the company she has built over the past nearly 20 years,” the Board said in its response.

Also, in any event one individual’s comments cannot undermine the boards fiduciary responsibility to all stakeholders, the Board said.

“If Ms. Reddy was really concerned about the company and its future, she as a Board member has the ability to constructively participate in all strategic discussions. Unfortunately, she is not doing so on the recent past,” the Board said.

In an earlier interview with Moneycontrol, Reddy had said she was forced to quit after differences on the valuation at which the majority investor wanted to sell the firm to Axis Bank. Reddy also said she didn’t have any plan to return to the company. “I have absolutely no intention of coming back to Spandana. Not at all. I’ve never had any hope. Everything is over. I left and I resigned, I got relieved by the board. And I'm looking at other options outside Spandana,” said Reddy.

Private equity fund Kedaara Capital-backed Kangchenjunga Ltd is the biggest shareholder in the microfinance institution 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.