A week after submitting her resignation, Padmaja Reddy, founder and former managing director of Spandana Sphoorty Financial, has penned a letter revealing murky details of her tussle with private equity investor Kedaara Capital over a proposal to sell the company to Axis Bank. Reddy has alleged that there was no transparency whatsoever in how the Axis deal was planned.

According to Reddy, Kedaara Capital was bent on selling the country’s second-largest micro-finance entity to Axis Bank at a throwaway price. “I opposed underselling of the company to Axis Bank at a throwaway price. While other MFIs were acquired at 4.75x and 3,5x BV multiples in the past few months, Kedaara wanted to sell Spandana at 1.6x, which is one-third of the other company’s valuation. They are hell-bent on selling the company for their personal benefits,” Reddy had said in a letter she had written to the employees last week.

Kedaara Capital offered lucrative monetary benefits to sway the Board in their favour, alleges former MD of Spandana Sphoorty

However, another letter written by Reddy that was shared this week brings to fore the circumstances that led to the resignation of the founder of Spandana Sphoorty Financial. Reddy says she had not in her wildest dreams imagined of resigning from an organisation she had started. She said an Investor she allowed in good faith backstabbed her and got his friends and friends’ friends on the company’s board to make her leave if she said no to any of the decisions. Reddy said she did not have the foggiest when Kedaara appointed the entire board and used it as a puppet to toe their line by providing them with monetary benefits.

She further alleged that Mr Sunish Sharma, representative of Kedaara Capital, used the lure of providing stock options to board members to sway them towards their side even though Reddy stoutly opposed doing so. The larger aim in appointing a favourable board and ingratiating them with stock options, Reddy alleges, was to get them beholden to them and eat them out of their hands. Kedaara also went to great lengths to have her removed from the company, she alleged.

“They had a clear road map to get me off whenever they wish to because as a promoter I will have my own view points in the interest of the company as I would not agree to anything that is against the interest of the company and its stakeholders. They wanted a CEO who is merely a yes-man and who can work for them without any long-term objective for the company. This is a lifetime lesson I learned and I urge all other entrepreneurs to beware of these wolfs in sheep’s clothing,” she added.

Exorbitant salary to the next CEO and extravagant renumeration given to top executives: Padmaja Reddy

Reddy also highlighted the alleged lack of defined process to ascertain the salary of the next CEO, saying the salary offered to the next incumbent is exorbitant event as the Microfinance industry is yet to fully recover from the pandemic-led stress. The former MD of the company also revealed the extravagant salaries drawn by executives for simply attending 5 to 6 hours on a zoom call once every three months. The letter says how some of the top executives on the Board were not even aware which company they were serving and the positions held by them.

In her letter, she has alleged that the new CEO has been hired at the CTC package of close to Rs 6.5 crores, which is equivalent to the salary drawn by the CEO of ICICI Bank. She said she used to draw Rs 3 crore a year along with a variable pay that was linked to company’s profit and had not had an increment in the last 13 years.

“I didn’t get even one rupee increment in the last thirteen years. I took 25% cut during CDR. I didn’t get a single stock option / sweat equity. All that I invested in the Company was my sweat and blood. Company Law does not allow Promoters to give stock options, yet there are various ways by which Promoters are benefitted. I didn’t have time to think of all these as I was always busy with work – either doing or thinking. Mr.Shalabh Saxena when he was negotiating his salary, he could increase his offer from Rs.3.5Cr to Rs.6.5Cr in three days. His CTC is just equal to that of ICICI Bank’s CEO,” she said.

The founder of Spandana Sphoorty said Kedaara Capital was willing to sell the company at below-par valuation because they were already making a profit of Rs 1,800 crore on an investment of just Rs 900 crore. She further added that those who were managing the deal would get 20 per cent from their deal with the Axis Bank while only 80 per cent would go to Limited Partners who invested in the fund.

“I grew the Book from 1,000Cr in Mar 2017 to 8,000Cr by Mar 21. I handed over the Company in a good shape and I have no confidence on Kedaara and the current management committee on how they would run the Company. I lost hopes on my shareholding in the Company,” she said while concluding the letter.

Letter written by Padmaja Reddy after her resignation

Below is the verbatim reproduction of the letter penned by Padmaja Reddy after resigning from Spandana Sphoorty:-

Dear All,

I apologize for not being able to respond to some of your calls in the last five days. I was in shock and needed some time to come out of it. This was not something I could have even imagined in a nightmare. In the last couple of weeks/months, I have seen and heard things that I wish I never would have. However, I have only started to realize how my grit and determination have been further strengthened by the whole series of events. Please feel free to call me if you have further questions after reading my lengthy mail.

I never thought that I would have to resign from my role as MD of Spandana against my choice. Not even in my wildest dreams could I have imagined that an Investor, whom I allowed in a good faith basis to have all his friends and Friends’ friends on Board, would use the same Board as a tool to ask me to leave if I say NO to any of his decisions.

I created Spandana in 1998 at the age of 30 and I sacrificed all my life for this Organization. I was with the Organization even in the thickest of the crises. Spandana was the worst impacted MFI after AP crisis as it had highest portfolio in AP and the balance sheet was highly leveraged. The entire Industry felt that Spandana would be the first MFI to fall off the map. The net worth turned negative and at one point in time, it was negative 1200 Cr. I didn’t have the luxury of time to get multiple investors when we were exiting from CDR in Mar 2017, so that no single investor could have the majority stake. I could not think that the Investor comes with no emotions for the Organization and for them only short-term personal gains would matter. I never thought that he would have set up a trap from the day he made his investment in the Company. When Kedaara represented by Mr. Sunish Sharma had appointed the entire Board, I did not sense that this Board is going to be used as his puppet and they would fall for the monetary gains he can offer them.

Some of them are titled as Independent Directors and they worked with big Banks and RBI in the past, I was of the opinion that they will have their own conscience and a backbone . I only realized the true colors of the Board when they asked for stock options when Mr. Sunish Sharma updated them that he is exploring strategic opportunities. He cleverly escaped from that situation stating that he will have to discuss with me. This happened in a special meeting without me and I was updated by one of the so-called Independent Directors about all other Directors asking for Stock options. I resisted this idea of giving stock options to them and Mr.Sunish Sharma used this opportunity to get the Board towards his side. They were not happy even after getting Rs. 20 Lakhs per annum sitting fees for connecting on Spanana’s zoom call for 5 to 6 hours on a zoom call once every three months. Some of these retired people, derive pension from the Government, get very high commission from private Equity funds for working as Operating partners and still draw sitting fees from the Board these PE funds invest in. Ofcourse they got lakhs of stock options from other Kedaara investee Companies where there is no promoter to resist and they had similar expectation. It was unfortunate that some of them literally have no idea of which Board they are on and what position they hold.

In-fact, I literally had to tell Spandana’s Chairman that he is not the Chairman of Criss Financial Limited (subsidiary of Spandana) when he wrote me a mail stating that he needed some sort of clarification from me owing to his authority as Chairman of Criss Financial Limited. I was to write to him clarifying that he is not the Chairman of Criss Financial. The Board has been completely incapable of strategically guiding the company. Over the last two years since the pandemic, there was never a query from the board on what would be the credit costs and the impact of this credit cost on the net-worth. I am not saying this because they have not renewed my contract. I have discussed with Sunish Sharma no less than 100 times about the necessity of having a better board, which actually cares for the company and can add some sort of value and whose age permits to do so. However Mr.Sunish Sharma has managed to get 75% shareholders approval to reappoint them, as he badly needs people who have no backbone and would give in to all his whims and fancies.

When Sunish Sharma shared the offer letter from Spandana to Mr.Shalabh Saxena (current MD and CEO of Bharat Financial Inclusion Limited), I was shocked to see that he is given offer as CEO and MD. It was surprising to note that the offer letter was not even sent from the company but was rather prepared by Kedaara. While I met Mr.Shalabh Saxena and gave my consent to his appointment as CEO, to my surprise he was offered MD and CEO. When the offer was still to go, I heard about how Mr.Shalabh and Aashish managed to hide over dues by sanctioning loans with the loan amount equal to the over dues without even the Borrowers knowledge that a new loan is created on their name. By then it was not in public arena and it was yet to accepted by the Bank, I heard that there was a whistle blower who informed RBI. From my field staff, I got reports that they gave loans equal to the overdue amount and knowing that the Borrowers are not going to repay this loan which is created without their knowledge, they gave moratorium on principal and only interest is expected to be serviced. The ref check done by Kedaara also hinted about Shalab’s aggressive way of disbursing loans with no caution. I literally pleaded with Mr.Sunish Sharma that neither the board nor Kedaara is capable of guiding the new CEO and other Senior management (by then his involvement in the conspiracy was not public), they can’t ensure controlled and quality growth and I want to continue as MD with limited involvement in day to day affairs and that I would only guide the new CEO and other senior management staff.

I highlited in my conversations with Sunish Sharma that the Board is not capable of giving strategic direction to the Company and more particularly in the current environment (post Pandamic) as they don’t know the basics of micro finance. Other than Kartikeya Kaji (one of the four nominee directors of Kedaara), who visited a few Branches and Centre meetings in 2017 as part of Kedaara’s due diligence prior to investment in Spandana, none of the Board members had ever visited a village / Branch and have absolutely no idea of our borrowers and our frontline staff. I remember a conversation in which Mr.Sharma himself said he got Bharath Shah on to the board and Bharath Shah has requested him to accommodate two others (Mr.Deepak Vaidya and Mr.Jagdish Capoor). My eyes welled with tears whenever I tried to convince Sunish Sharama to renew my contract in the interest of the Company and the staff. I felt that I have a responsibility towards all the lenders. My only motivation to request, plead and beg Mr.Sunish Sharma for over a month’s time was to guide the incumbent CEO Mr.Shalabh Saxena and other senior management staff. I genuinely felt that Spandana needs me for few more years and felt that my 23 years of experience in Micro finance should not go to waste. His one and only objective in denying my request and managing the Board was to sell the Company. Kedaara invested in the Company at 400 Cr Pre-money value and Rs. 1,000 Cr post money value. They already realized Rs. 600 Cr in IPO. The price at which he agreed to sell the Company to Axis Bank, would have given Kedaara Rs. 1800 Cr profit on 900 Cr investment. I also got to know that these guys, who manage this investment would get 20% of the profit as their carry (commission / incentive) and only 80% is passed on to Limited Partners who invested in the fund. This transaction would have given them Rs. 360 Cr carry, which will be divided amongst three or four people.

When I said NO to Axis bank sale, they could not digest their personal loss to them. I was hell-bent on not selling Spandana to Axis Bank at such a low multiple. Four years back, BFIL was acquired by IndusInd at 4.75x BV Multiple and we are also aware of the two other transactions happened very recently in MF Industry. One of the foreign Banks acquired an NBFC (which has sizeable micro finance portfolio) at 4.75x BV and one of the Private Sector Banks invested in an MFI which has Rs.500Cr AUM at 3.5x BV multiple. The NBFC acquired by the foreign bank has made a loss of 1,600 Cr last year where as Spandana has made over 200Cr profit even in such dire circumstances. Despite Spandana being the highest profit making NBFC MFI and has grown book eight times in four years, Kedaara tried to undersell the company at 1.6 BV multiple as compared to 4.75 BV multiple commanded by the aforementioned transactions. I could not understand the reasons of why Kedaara was prepared to undersell. The reason stated by them was they are not bullish about Micro Finance and they are not happy with crisis after crisis every three years. When I resisted and told them clearly that I am not selling my stake and this transaction should not happen, they pretended to have agreed with me and said Yes. It is only after almost a month when I talked directly to the bank , I understood that they didn’t call off the deal and they started playing behind me. As they were talking to the bank, they were also laying the groundwork to push me out of the company. As they felt that I am an obstruction for their deal, they planned to move me out. While everybody was wondering on what knowhow and capability they have, to run Spandana, they were fearless as they do not want to run the Company and they just want to sell it. I thought that I was sincere, I work hard, I have great passion for my work and I have highest level of honesty and integrity, who would dare to ask me to leave?

It was shocking to read from Economic Times that Kedaara guys projected Mr.Shalabh Saxena as CEO in the offer document to Axis bank. I was completely oblivious to this fact as well. There was absolutely no transparency how this Axis deal was planned. They tried to completely keep me in the dark and dug graves behind me. I was not part of the call /meeting when they discussed about the valuation with the Axis Bank, though I am the Promoter, founder, 17% Shareholder and Managing Director.

I also want to take this opportunity to explain why I didn’t serve notice period and my leaving from the company and the date of resignation is same. As per my management contract, they have put a clause that they can remove me any day without even a day’s notice and I can also leave the Company without having to serve even a day’s notice period. Ofcourse I only asked them to insert the second clause when they were adamant on having the first clause. This clause was included in the management contract they drafted in 2017 March. They had a clear road map to get me off whenever they wish to because as a promoter I will have my own view points in the interest of the company as I would not agree to anything that is against the interest of the company and its stakeholders. They wanted a CEO who is merely a yes-man and who can work for them without any long-term objective for the company. This is a lifetime lesson I learned and I urge all other entrepreneurs to beware of these wolfs in sheep’s clothing.

Twenty four years back in 1998 at the age of 30, I created Spandana. I worked relentlessly for 80 to 90 hours every week since then. I never left office on the same day without date change. At times, I was surprised of my own commitment for the Company and I continued doing the same way during CDR time. Back then I had no hope that that the Company is going to survive, still I worked relentlessly to bring Spandana out of CDR. Thanks to Feroz and Vinay, who were always with me during my journey and who immensely contributed for the growth of Spandana. When few rumors were created on my non existence in the past, I travelled across length and breadth of Krishna Dist, visited each and every village, stayed for three month in Chhattisgarh and spent two moths in Salem to turnaround the situation. I cant imagine these guys managing such unfortunate situations.

I didn’t get even one rupee increment in the last thirteen years. I took 25% cut during CDR. I didn’t get a single stock option / sweat equity. All that I invested in the Company was my sweat and blood. Company Law does not allow Promoters to give stock options, yet there are various ways by which Promoters are benefitted. I didn’t have time to think of all these as I was always busy with work – either doing or thinking. Mr.Shalabh Saxena when he was negotiating his salary, he could increase his offer from Rs.3.5Cr to Rs.6.5Cr in three days. His CTC is just equal to that of ICICI Bank’s CEO.

We all read in the news recently the speech of Deputy Governor Mr.Rao. He said that MFIS shall work with social objective. I concur with his views and I will request RBI to put some curbs on MFI CEOs CTC and Board of Directors Sitting fees. Don’t they need to have social objective??

Mr.Shalabh Saxena got 1.5% of the Company as stock options. This lured him to leave his current job as Kedaara projected that he can get Rs.140Cr in four years with 20% annual increase in stock price. However, he wouldn’t have to wait for four years, If the Company is sold and he will get all 9.5L options vested immediately. Mr. Saxena has a non-compete clause in his contract with IndusInd Bank. He can’t join competition as per the agreement he signed. However, Kedaara and the Board offered him the financial and legal support in case IndusInd Bank challenges legally upon joining Spanana. This was mentioned in the offer given to him. A copy of offer letter is annexed for your reference. Kedaara was willing to go out of their way, move mountains and award lopsided benefits to someone out of their sheer desperation to push me out of the company and get the Axis transaction done.

I apologize that I could not meet you in the last one month, as I was aware that I would have to leave the Company. When Mr. Sunish Sharma told me that he cant renew my contract to work as MD, I called for emergency Board Meeting. In the Board Meeting, the Board Chairman was given a script. He insisted upon Feroz (CSO) leaving the Board room. These guys never had issue with Feroz sitting in the Board room in the last four years. When I insisted that Feroz will be there in the meeting, the Chairman started board meeting with opening remarks pointing out at me “Your resignation is accepted, you are sacked and you get out of here” I swear on GOD, I did not resign by then and he could not share my resignation when I demanded him to share my resignation, he was speechless. They tried their level best to make me resign without them actually making a formal board decision on not renewing my contract. They wanted to kick me out and yet didn’t want to take the blame if things go sideways once I am pushed out. They instigated my own staff that I hired and filing of CFO’s and CSO’s resignation without the knowledge of us was one such act. They literally had people working with the Company Secretary – Ramesh Periasamy stalk us around the office. They ran a relentless campaign on Money Control to tarnish my name and assassinate my character. I had to wake up to ridiculous claims and comments about my work ethic and my charatacter on Money Control platform for almost a month. This was done with an objective to push me to resign and also to familiarize the market, staff, investors and the Industry over a period of time so that my exit won’t be a shock. Appointment and reappointment of MD and CEO is Board decision, here, Mr. Sunish Sharma decides and the Board merely follows his decisions.

I grew the Book from 1,000Cr in Mar 2017 to 8,000Cr by Mar 21. I handed over the Company in a good shape and I have no confidence on Kedaara and the current management committee on how they would run the Company. I lost hopes on my shareholding in the Company.

While I always feel obligated to all the lenders, I am in a helpless state and I can only hope that Spandana will find a committed and capable team to run the company. As a shareholder, Promoter and Founder of Spandana, I don’t want this Company to be managed by someone who has been found guilty of managing overdues and creating fake loans. I wish Spandana to reach greater heights.

I thank you all for the support extended to Spandana all times. Though I am leaving the Company with empty hands, I don’t feel bad about it as I carry your good wishes.

Thanks and best regards,

Padmaja Reddy
Promoter, Founder and Director
Spandana Sphoorty Financial Limited