Lenders seek urgent talks between Reddy and Spandana Sphoorty

Concerned over their money, lenders to Spandana Sphoorty urged the microfinance institution (MFI) and Padmaja Reddy to sort out their differences and let the company get on with business.

A senior executive with a financial institution said a few lenders with large exposures have had discussions with Reddy and those involved in managing the MFI. They conveyed that while business is viable, the strife could hit growth prospects.

Given the risks in the MFI sector, lenders would look to take further exposure only after a settlement is reached, said an executive with a small bank. Spandana Sphoorty, which is backed by private equity fund Kedaara, and Reddy, its founder and former managing director, are moving towards some understanding on payment of dues and clearing-related party transactions.

Dues pertain to Spandana Mutual Benefit Trust, which worked as collection agent for the MFI. There are also dues to third-party firm Abhiram Marketing, where Reddy holds a substantial stake.

Reddy quit abruptly in November 2021, following differences with the private equity investor on the future of the MFI, and on selling it. 

Later, she filed a suit in a court seeking reinstatement as the head of the NBFC-MFI while the lender appointed Shalabh Saxena as managing director. Saxena was working earlier with the MFI unit of IndusInd Bank.

Reddy confirmed prodding by the lenders to talk to the company. Meanwhile, Spandana Sphoorty declined to comment. In November 2021, the company kept disbursements on hold and focused on collections and recoveries. It resumed loan disbursements in the fourth quarter.

Meanwhile, rating agency CRISIL said it has retained "Rating Watch with Developing Implications" status for the long-term rating of Spandana Sphoorty. It will resolve the rating watch once adequate track record of stable operations has been established. This comes as the new management settles and there is clarity on underlying asset quality and profitability.

Its gross non-performing assets (GNPAs) stood at 5.5 per cent and net NPAs were at 2.8 per cent as on December 31, 2021. The company also opted to restructure loans over Q2 of 2022.