(Fixes rank to fourth-biggest in para 10)

By Jayshree Pyasi

MUMBAI (Reuters) -An Indian regulator is investigating investments between Nippon India Mutual Fund, the most important foreign-owned fund within the nation, and Yes Bank between 2016 and 2019 for suspected misuse of buyers’ cash, sources stated.

At the time, the father or mother firm of the mutual fund was owned by the Anil Dhirubhai Ambani Group. Yes Bank was taken over by the central financial institution in 2020 and bought to a consortium of banks after a dramatic rise in poisonous belongings.

The Securities and Exchange Board of India (SEBI) is probing whether or not investments by the fund, recognized on the time as Reliance Mutual Fund, in perpetual bonds of Yes Bank have been made as a part of a deal whereby in return the lender invested in securities of Anil Ambani group firms, stated two sources with direct information of the matter. The sources declined to be named because the investigation is confidential.

SEBI’s laws say that the father or mother of a mutual fund can’t entry buyers’ cash both straight or not directly.

If the regulator’s probe leads to fees in opposition to the fund, its officers or the financial institution, it might result in penalties starting from restrictions on accessing capital markets to financial penalties. The present proprietor of the fund, Nippon India, in addition to the earlier proprietor may very well be liable, the sources stated.

The market regulator’s probe has not been beforehand reported.

The fund home itself, senior officers and its former sponsor might face fees for violating regulatory norms below India’s ‘Prevention of Fraud and Unfair Trade Practices Relating to Securities Market’ guidelines, one supply stated. Yes Bank and its former officers might additionally face fees, the supply added.

Nippon India, the Anil Ambani Group, Yes Bank and SEBI didn’t reply to requests for remark. Sundeep Sikka, who has been chief govt workplace of the mutual fund since 2009, didn’t reply to requests for remark.

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Nippon India, a unit of Nippon Life Insurance Co, acquired 75% in Reliance Asset Management Company in October 2019 to develop into the proprietor of the mutual fund. The transactions below scrutiny date again to earlier than the switch of possession, the sources stated. Nippon Life didn’t reply to phone calls from Reuters looking for remark.

As of December 2022, Nippon India was the fourth-largest mutual fund in India with belongings below administration of two.9 trillion rupees ($35.46 billion) in addition to the largest foreign-owned mutual fund.

The Nippon India mutual fund was the largest holder of extra tier-1 bonds issued by Yes Bank between 2016 and 2019 and held 250 billion rupees out of the 841 billion rupees of such securities issued by Yes Bank, based on court docket paperwork.

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

As a consequence of this case, the market regulator plans to tighten its guidelines, stated the primary supply, though any closing choice will solely come after the investigation is accomplished.

On Friday, SEBI proposed additional tightening of mutual fund laws asking mutual fund house owners to scale back their stake regularly as a measure to test their affect on funding choices. It didn’t specify a stage to which they have to scale back their holdings. Present guidelines require that mutual fund house owners maintain a minimal 40% stake.

“If this becomes a rule, this would address issues of conflict of interest and undue influence which have led to bad investment decisions by fund managers,” stated the primary supply.

(Reporting by Jayshree P Upadhyay; Editing by Ira Dugal and Raju Gopalakrishnan)