Bangalore: Janalakshmi Financial Services, a Bangalore-based microlender to the urban poor, raised Rs65 crore ($14.4 million) in its third round of private equity funding taking the total amount to a little over Rs 100 crore, chairman Ramesh Ramanathan said on Wednesday.

Funds to India’s microfinance sector have dried up after it suffered a setback late in 2010 when the state of Andhra Pradesh, which had the largest microfinance market in India, approved legislation to regulate the industry following complaints about high interest rates, aggressive recovery practices and overextended borrowers.

“Coming after a major crisis in the sector, this is a major transaction and is a clear sign that the tide is turning for microfinance,” Ramanathan said.

Citi Venture Capital International has acquired a significant minority stake in the company through this latest round of funding, though he did not reveal details. Other investors in this round include TreeLine and other existing private investors. Bangalore-based Unitus Capital was the lead arranger and adviser of the issue. Morgan Stanley also acted as an adviser.

“Bankers need to see MFIs raise equity capital. This transaction is a signal that microfinance is turning the corner,” Ramanathan said, referring to banks’ reluctance to lend to microlenders immediately after the crisis.

Ramanathan said there was a possibility of a consolidation in the sector after the new guidelines from India’s central bank, but ruled out acquiring other firms.

“We are looking to grow organically,” he said.

Janalakshmi lends exclusively to the urban poor and had Rs250 crore in disbursals as of March 2011, up from Rs80 crore in March 2010.

The proceeds from the latest round of funding would go toward disbursals and ‘business building´, Ramanathan said. Janalakshmi, which operates in nine states, does not have a presence in Andhra Pradesh.

Shares of SKS Microfinance , India’s largest and only listed microfinance firm with a sizable portfolio in Andhra Pradesh and the subject of much public scrutiny after it raised $358 million in a hugely successful IPO in August 2010, closed down 3.8%. The stock has lost more than 70% of its value since October when the Andhra Pradesh legislation took effect.