Reliance Mutual Fund's Rs 2,850 Crore Investment in YES Bank Under Scrutiny

Reliance Mutual Fund, owned by businessman Anil Ambani, has come under investigation following a significant investment of Rs 2,850 crore in Additional Tier-1 (AT-1) bonds issued by YES Bank. Sources from the Enforcement Directorate (ED) suggest that this transaction may have involved a quid pro quo.

AT-1 bonds are distinct from standard bonds as they do not have a specified maturity date. Investors in AT-1 bonds typically do not receive their principal back but instead continue to earn higher interest rates indefinitely. In times of financial distress, banks have the authority to convert these bonds into equity or, in extreme cases, write them off entirely.

Subsequent to the investment, the ED reports that the bonds held by Reliance Mutual Fund were written off, leading to concerns that the funds were misappropriated. It is claimed that the investment belonged to mutual fund investors, raising significant alarm regarding the safeguarding of investor interests.

The Central Bureau of Investigation (CBI) has also initiated its inquiries into the situation, as the fallout continues. According to information relayed by the Securities and Exchange Board of India (SEBI), Reliance Infrastructure allegedly rerouted a considerable sum disguised as inter-corporate deposits (ICDs) to other entities within the Reliance Group via a company termed 'C.' This unnamed entity is believed to be a related party but was not disclosed officially in order to sidestep necessary approvals from both shareholders and the audit committee, as required by law.

ICDs represent loans that one corporation extends to another. Investigations suggest that Reliance Infrastructure has endured a considerable loss of around Rs 5,480 crore, receiving merely Rs 4 crore in cash during this financial manoeuvring. Furthermore, it is alleged that Rs 6,499 crore has been resolved through the assignment or transfer of assets and economic rights, with these assets primarily linked to certain distribution companies (discoms) that have not been operational for several years. The likelihood of recovery for these amounts remains uncertain, indicating a potential loan diversion exceeding Rs 10,000 crore.

Earlier today, law enforcement authorities executed searches across over 35 locations in Mumbai associated with approximately 50 companies and 25 individuals under the Prevention of Money Laundering Act (PMLA).

In response to the unfolding investigation, two prominent companies within the Reliance Group, Reliance Power and Reliance Infrastructure, issued comparable statements asserting that the ED's actions have had no discernible effect on their operations, financial performance, shareholders, employees, or other stakeholders. They remarked, "The media reports appear to pertain to allegations concerning transactions of Reliance Communications Limited (RCOM) or Reliance Home Finance Limited (RHFL) which are over 10 years old."

Following the ED raids, shares of both Reliance Power and Reliance Infrastructure witnessed a decline of 5%, reaching their lower circuit limits by the end of trading on Thursday. The ongoing investigations are likely to have long-lasting implications for the involved parties, including investor confidence in the companies' financial integrity. Authorities continue to scrutinise the unfolding events closely as further details are anticipated in the coming days.