SEBI probes investments between Nippon Mutual Fund, Yes Bank: Report

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Yes Bank was taken over by the central bank in 2020 and sold to a consortium of banks after a dramatic rise in toxic assets.

Yes Bank was taken over by the central bank in 2020 and sold to a consortium of banks after a dramatic rise in toxic assets.

Market regulator SEBI is investigating investments between country’s largest foreign-owned fund Nippon India Mutual Fund and Yes Bank between 2016 and 2019 for “suspected misuse of investors’ money,” news agency Reuters reported on January 19 citing sources.

At the time, the parent company of the mutual fund was owned by the Anil Dhirubhai Ambani Group. Yes Bank was taken over by the central bank in 2020 and sold to a consortium of banks after a dramatic rise in toxic assets.

According to the Reuters report, the Securities and Exchange Board of India (SEBI) is probing whether investments by the fund, known at the time as Reliance Mutual Fund, in perpetual bonds of Yes Bank were made as part of a deal whereby in return the lender invested in securities of Anil Ambani group companies. The sources declined to be named as the investigation is confidential, it added.

Moneycontrol has not independently verified the development.

SEBI’s regulations say that the parent of a mutual fund cannot access investors’ money either directly or indirectly.

Sources also told Reuters that if the regulator’s probe results in charges against the fund, its officials or the bank, it could lead to penalties ranging from restrictions on accessing capital markets to monetary penalties. The current owner of the fund, Nippon India, as well as the previous owner could be liable.

Nippon India, a unit of Nippon Life Insurance Co, acquired 75 percent in Reliance Asset Management Company in October 2019 to become the owner of the mutual fund. The transactions under scrutiny date back to before the transfer of ownership, the sources told the news agency.

As of September 2022, Nippon India was the fourth largest mutual fund in India with assets under management of 2.9 trillion rupees ($35.46 billion) as well as the biggest foreign-owned mutual fund.

The Nippon India mutual fund was the biggest holder of additional tier-1 bonds issued by Yes Bank between 2016 and 2019 and held Rs 25,000 crore out of Rs 84,100 crore of such securities issued by Yes Bank, according to court documents, accessed by Reuters.

These bonds were cancelled in 2020 by Yes Bank as part of its restructuring, which has been challenged in court by bondholders.

(With inputs from Reuters)