Royal Bank of Scotland Group PLC agreed to pay $42.5 million in a settlement with the Nevada attorney general after an investigation into the bank's mortgage funding practices, the New York Times reported on Tuesday.

"The payment from RBS will alleviate some of the injury to the Silver State and its residents. The changes to its securitization process should help make sure that we do not go down this road again," the newspaper quoted Nevada's attorney general, Catherine Masto, as saying in a statement.

The investigation found that RBS formed joint ventures with mortgage lenders Countrywide Financial Corp and Option One during the housing boom, to make "reckless" loans that were not likely to be repaid, the New York Times reported.

According to officials at the attorney general's office, RBS funded more than $100 billion of risky loans from 2004 to 2007 and was the third-largest securitizer of subprime mortgages and adjustable rate loans in Nevada, the newspaper said.

Of the settlement amount, $36 million will be given to distressed borrowers throughout Nevada, the paper said. http://link.reuters.com/qyp53t

RBS did not admit or deny accusations when it agreed to the settlement, the New York Times report said.

Officials at the Nevada attorney general's office and Royal Bank of Scotland were not available for comment outside of business hours.

(Reporting By Vrinda Manocha in Bangalore; Editing by Chris Gallagher)