Hyderabad: Janalakshmi Financial Services Pvt. Ltd, the microfinance institution (MFI) promoted by former Citigroup Inc. banker Ramesh Ramanathan, has raised equity funding of Rs325 crore, in a sign of confidence in the industry following the crisis that gripped it in the wake of restrictive Andhra Pradesh legislation three years ago.

“This is the largest transaction in Indian microfinance since the 2010 Andhra crisis," Bangalore-based Janalakshmi said in a release on Wednesday.

The microlender, which operates in nine states, posted a net profit of Rs18 crore on total revenue of Rs170 crore in the year ended 31 March. The MFI has an asset base of Rs1,200 crore.

Janalakshmi is one of two MFIs that have applied for a banking licence last month. The applications are being scrutinised by the Reserve Bank of India (RBI). The other MFI applicant is Kolkata-based Bandhan Financial Services Pvt. Ltd.

Morgan Stanley Private Equity Asia (MSPEA) led Janalakshmi’s Series D funding round. Tata Capital Growth Fund and QRG Enterprises, the holding company of Havells India, also participated, as did existing investors Citi Venture Capital, India Financial Inclusion Fund and Vallabh Bhanshali, the co-founder and chairman of Enam Financial Consultants Pvt. Ltd.

Edelweiss Financial Services Ltd and Unitus Capital Pvt. Ltd jointly advised the company on the transaction.

In addition to this, secondary transactions aggregating Rs25 crore provided a complete exit for Lok Capital Llc and the Michael and Susan Dell Foundation, both of which were early stage Series A investors in Janalakshmi.

“This investment will help us continue in our path of growth and innovation, as we continue to focus on building stronger customer relationships with a full suite of financial products and new technology—like Aadhaar-based, front-end terminals," said V.S. Radhakrishnan, managing director and chief executive officer of Janalakshmi.

MFIs are seeking to recover from the industry-wide crisis sparked by the October 2010 law put in place by Andhra Pradesh, the biggest market for loans made to low-income earners. The law sought to rein in lending by MFIs, following reports that coercive loan recovery practices were driving over-extended borrowers in the southern state to commit suicide. Loan recoveries plunged to as low as 5% in Andhra Pradesh and funding dried up for MFIs after the law took force.

“The industry has come out of the woods outside Andhra Pradesh," said Alok Prasad, chief executive officer of industry body Microfinance Institutions Network (MFIN) “Once you see that the risks are mitigated, it’s a very interesting space to be in," Prasad said.