Royal Bank of Scotland Group Plc reached a $125 million settlement over residential mortgage-backed securities missold to California's public employee and teacher pension funds, California Attorney General Xavier Becerra said.

The lender failed to disclose the exact quality of underlying mortgages in these portfolios, the attorney general's office said citing its investigation.

The U.K.-based lender "decided to mislead California's pension funds in order to line its own pockets," Becerra said.

Meanwhile, RBS continues to negotiate a settlement with the U.S. Department of Justice over its mortgage bond investigation, which has hindered the lender's prospects of going private.