According to sources, the Indian regulator is looking into investments between Nippon Mutual Fund and Yes Bank

According to sources, an Indian regulator is looking into investments between Nippon India Mutual Fund and Yes Bank, the largest foreign-owned fund in the nation, between 2016 and 2019 for possible investor money exploitation.

The Anil Dhirubhai Ambani Group at the time owned the mutual fund’s parent business. Following a sharp increase in toxic assets, Yes Bank was taken over by the central bank in 2020 and sold to a group of banks.

According to two sources with direct knowledge of the situation, the Securities and Exchange Board of India (SEBI) is looking into whether investments by the fund, then known as Reliance Mutual Fund, in perpetual bonds of Yes Bank were made as part of a deal whereby the lender invested in securities of Anil Ambani group companies in exchange. Because the probe is private, the sources declined to give their names.

If the regulator’s investigation leads to charges against the fund, its representatives, or the bank, there may be repercussions that range from limitations on access to the capital markets to financial fines. The sources indicated that both Nippon India, the fund’s current owner, and the prior owner might be held accountable.

The investigation by the market regulator has not before been publicized.

According to one source, charges for regulatory violations under India’s “Prevention of Fraud and Unfair Trade Practices Relating to Securities Market” guidelines may be brought against the fund house itself, key executives, and its former sponsor. The insider indicated that Yes Bank and its former executives might also be charged.

Requests for a response from Nippon India, the Anil Ambani Group, Yes Bank, and SEBI went unanswered. Requests for comment from Sundeep Sikka, the mutual fund’s chief executive officer since 2009, went unanswered.

In order to become the owner of the mutual fund, Nippon India, a division of Nippon Life Insurance Co (NPNLI.UL), purchased 75% of Reliance Asset Management Company in October 2019. According to the sources, the transactions under investigation began before the ownership changed. TradingTwist’ calls to Nippon Life requesting comment were not returned.

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

According to court records, out of the 841 billion rupees in such securities that Yes Bank issued between 2016 and 2019, the Nippon India mutual fund held 250 billion rupees, making it the largest holder of additional tier-1 bonds.

In 2020, Yes Bank canceled these bonds as part of a reorganization that bondholders have sued over in court.

According to the first source, the market regulator plans to strengthen its regulations as a result of this instance, but no final decisions will be made until the inquiry is over.

As a bid to limit their effect on investment choices, SEBI suggested further tightening mutual fund laws on Friday. Mutual fund owners would be asked to gradually reduce their ownership. The amount by which they had to cut their assets was not specified. Owners of mutual funds must currently possess a minimum of 40% of the company.

The first source explained, “If this becomes a norm, this would address concerns of conflict of interest and excessive influence which have led to poor investment decisions by fund managers.”

(This story has been updated to change the rank in paragraph 10 from “seventh-largest” to “fourth-largest”).

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