Japanese insurer Nippon Life's Indian asset management unit will pay a fine to settle allegations by Indian regulators that the fund fraudulently invested in bonds from lender Yes Bank, according to a document reviewed by Reuters.
Nippon Life India Asset Management will pay 964.6 million Indian rupees ($10.25 million) to settle charges it offered its customers high-risk Yes Bank bonds and in return the lender extended loans to companies backed by the unit's previous owner, industrialist Anil Ambani, according to the letter from the Securities and Exchange Board of India (SEBI) to Nippon India dated April 15.
The settlement stipulates 93% of the settlement, or 897.4 million rupees, will go to Nippon India's investors that lost money, a rare condition in regulatory settlement offers, which typically require companies to deposit the penalties with the Indian government.
The settlement between Nippon India, a unit of Japan's Nippon Life Insurance Co, and SEBI has not been previously reported.
Under SEBI's regulations, Nippon India did not acknowledge any wrongdoing by agreeing to the settlement.
SEBI, Nippon Life and Nippon India unit did not reply to requests for comment on the settlement.
Anil Ambani, the younger brother of Mukesh Ambani, sold Nippon India, then known as Reliance Mutual Fund, to Nippon Life in October 2019.
SEBI alleges that between 2016 and 2019 Ambani and his son Jai Anmol Ambani influenced Reliance Mutual to invest 21.5 billion Indian rupees ($228.57 million) into Yes Bank's additional tier-1 (AT-1) bonds and in return the Ambani-backed companies received loans from Yes Bank.
Reliance Mutual's investment in AT-1 bonds became worthless after Yes Bank was declared insolvent in 2020, resulting in what SEBI said was 18.28 billion rupees of investor losses.
AT-1 bonds are a category of capital-raising securities that can be written off when a bank becomes insolvent, rendering them high-risk.
AT-1 bonds garnered more scrutiny after Credit Suisse's controversial 2023 bond wipeout triggered lawsuits across multiple jurisdictions.
A decision from India's top court on whether the write-off of Yes Bank's AT-1 bonds was legal is pending.
In its investigation, SEBI found senior officials at the Reliance Anil Ambani Group influenced the decision to invest in Yes Bank's AT-1 bonds in violation of rules that require such decisions to be made by an independent investment committee.
SEBI's regulations also say that the parent of a mutual fund cannot access investors' money either directly or indirectly.
In August, SEBI rejected a settlement plea in the same case filed by Anil Ambani.
