Can you describe the specific interaction where Sai Baba tells a devotee that his 'bad phase' is ending?

Certainly. Chapter 14 details this powerful interaction with a devotee named Ratanji. Feeling unfortunate, Ratanji pleaded with Baba, "You know my worry; O merciful one, remove it." In response to this heartfelt plea, compassion arose in Sai Nath. Baba directly addressed his devotee's state of mind by saying, "Do not worry in vain; from now on, your bad phase has started to decline." Following this definitive statement, Baba solidified His blessing by giving Ratanji the Prasad of Udi, placing a hand of grace on his head, and promising that Allah would fulfill his heart's desire.