Nippon India Mutual Fund Under CBI and SEBI Investigation, SEBI issued show-cause notice

Nippon India Mutual Fund, formerly known as Reliance Mutual Fund, is under scrutiny by the Central Bureau of Investigation (CBI) for its investment of ₹950 crore in non-convertible debentures (NCDs) of Morgan Credit Private Limited, a company owned by the family of Rana Kapoor, the co-founder of Yes Bank.

The investigation is part of a larger probe involving multiple agencies, including the Securities and Exchange Board of India (SEBI). The focus is on investments totaling ₹2,850 crore made by companies previously owned by Reliance Capital in Additional Tier-1 (AT1) bonds issued by Yes Bank.

Documents Sought by CBI

In its latest action, the CBI has requested documents and information related to the investments made by the mutual fund in April 2018. The request was sent to Nippon India Mutual Fund on December 21, marking a significant step in the ongoing investigation.

SEBI Issues Show-Cause Notice

In August 2024, SEBI issued a show-cause notice to Nippon India Mutual Fund, along with several key individuals and entities. The notice was directed at Anil Ambani, his son Jai Anmol Ambani, Rana Kapoor, and top executives of Nippon India Mutual Fund, including CEO Sundeep Sikka, Chief Investment Officer (CIO) for Fixed Income Amit Tripathi, and Chief Officer for Operations & Customer Service Milind Nesarikar.

The transactions under scrutiny date back to a period when Reliance Capital was the parent company of the mutual fund, as well as other entities like Reliance Home Finance and Reliance Commercial Finance.

Allegations of Quid Pro Quo

The probe centers on transactions that occurred between December 2016 and March 2020. SEBI alleges that there were “quid pro quo” arrangements between Yes Bank and companies linked to Reliance Capital.

According to SEBI, Reliance Mutual Fund and Reliance Capital invested ₹2,850 crore in AT1 bonds issued by Yes Bank, part of which was used to purchase NCDs issued by Morgan Credit Private Limited. In return, Yes Bank reportedly extended financial facilities to Reliance entities.

• In January 2017, Yes Bank provided ₹500 crore to Reliance Home Finance through a mix of cash credit, working capital loans, and investments in NCDs.
• In October 2017, Yes Bank extended ₹2,900 crore in the form of NCD investments in Reliance Capital, Reliance Home Finance, and Reliance Commercial Finance.

Nippon Life Responds

In a statement to the stock exchanges on September 7, Nippon Life India Asset Management confirmed receiving SEBI’s show-cause notice. The company clarified that the notice pertains to investments made in AT1 bonds of Yes Bank during the period when it was still operating as Reliance Mutual Fund.

The statement noted:

“The SCN has been issued, inter alia, to the Company and certain individuals who during 2016-2020 held positions as the CEO & ED, the CIO / Head-Fixed Income, and the CRO, in connection with certain investments made in AT1 Bonds of Yes Bank Limited by then Reliance Mutual Fund.”

Name Change and Broader Context

The mutual fund rebranded itself as Nippon India Mutual Fund in September 2019, following Nippon Life Insurance’s acquisition of a majority stake in the fund. However, the current investigations focus on the period before the rebranding, when Reliance Capital was its parent company.

The case highlights the growing scrutiny of financial dealings involving mutual funds and banks, with regulatory agencies striving to ensure transparency and accountability in such transactions.