What are AT1 bonds?
- AT1 Bonds stand for additional tier-1 bonds.
- These are unsecured bonds which have perpetual tenure. In other words, the bonds have no maturity date.
- They have call option, which can be used by the banks to buy these bonds back from investors.
- These bonds are typically used by banks to bolster their core or tier-1 capital.
- AT1 bonds are subordinate to all other debt and only senior to common equity.
- Mutual funds (MFs) are among the largest investors in perpetual debt instruments, and hold over Rs 35,000 crore of the outstanding additional tier-I bond issuances of Rs 90,000 crore.
What action has been taken by the Sebi recently?
- In a recent circular, the Sebi told mutual funds to value these perpetual bonds as a 100-year instrument. This essentially means MFs have to make the assumption that these bonds would be redeemed in 100 years.
- The regulator also asked MFs to limit the ownership of the bonds at 10 per cent of the assets of a scheme.
