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Consider the following statements regarding AT-1 bonds.
1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.
2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.
3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.
Which of the above statements is/are correct?
- a)1 and 2 only
- b)1 and 3 only
- c)2 and 3 only
- d)1 only
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
Consider the following statements regarding AT-1 bonds.1. AT-1 bonds ...
AT-1 bonds are unsecured, perpetual, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms. Banks can skip paying interest on these bonds if their capital ratios fall below a certain threshold level.
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Market regulator Securities and Exchange Board of India (Sebi) tightened its regulations of additional tier-1 bonds or AT-1 bonds and ensured that these risky instruments are less accessible to retail investors.
As per the latest norms, banks can issue these bonds only on an electronic platform, and only institutional investors could subscribe to them. Minimum allotment for these bonds is set at 1 cr
"These instruments have certain unique features which, inter-alia, grant the issuer (i.e. banks, in consultation with RBI) a discretion in terms of writing down the principal/interest, to skip interest payments, to make an early recall etc. without the commensurate right for investors to legal recourse, even if such actions of the issuer might result in a potential loss to investors,"
"The absolute right, given to the RBI, to direct a bank to write down the entire value of its outstanding AT1 instruments/bonds, if it thinks the Bank has passed the Point of Non-Viability (PONV) or requires a public sector capital infusion to remain a going concern.
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Consider the following statements regarding AT-1 bonds.1. AT-1 bonds ...
AT-1 Bonds:
AT-1 bonds, also known as Additional Tier 1 bonds, are a type of debt instrument issued by banks to raise capital. These bonds are a part of the Basel III regulatory framework, which was introduced to strengthen the stability of the banking system. Let's analyze each statement regarding AT-1 bonds:
Statement 1: AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.
This statement is correct. AT-1 bonds are unsecured, perpetual bonds that are considered high-risk due to their nature. Unlike traditional bonds, AT-1 bonds do not have a fixed maturity date and carry a higher level of risk because they can be written off or converted into equity by the issuing bank under certain predefined trigger events. Banks issue these bonds to bolster their core capital base and meet the capital requirements set by the Basel III norms.
Statement 2: As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.
This statement is also correct. The Reserve Bank of India (RBI) has mandated that AT-1 bonds can only be issued through electronic platforms, ensuring transparency and efficiency in the issuance process. Additionally, only institutional investors, such as mutual funds, insurance companies, and pension funds, are allowed to subscribe to these bonds. This restriction is in place because AT-1 bonds are complex instruments that require a certain level of financial expertise to understand the risks involved.
Statement 3: As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.
This statement is incorrect. As per RBI guidelines, banks have the discretion to skip paying interest on AT-1 bonds if their capital ratios fall below a certain threshold level. This feature is known as the "principal loss absorption mechanism," which allows banks to preserve capital in times of financial stress. When the capital ratios of a bank fall below the prescribed level, interest payments on AT-1 bonds can be deferred or written-off, providing a cushion to absorb losses and protect the bank's solvency.
In conclusion, statement 1 and statement 2 are correct regarding AT-1 bonds. However, statement 3 is incorrect as banks have the option to skip paying interest on these bonds if their capital ratios fall below a certain threshold level.
AT-1 bonds, also known as Additional Tier 1 bonds, are a type of debt instrument issued by banks to raise capital. These bonds are a part of the Basel III regulatory framework, which was introduced to strengthen the stability of the banking system. Let's analyze each statement regarding AT-1 bonds:
Statement 1: AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.
This statement is correct. AT-1 bonds are unsecured, perpetual bonds that are considered high-risk due to their nature. Unlike traditional bonds, AT-1 bonds do not have a fixed maturity date and carry a higher level of risk because they can be written off or converted into equity by the issuing bank under certain predefined trigger events. Banks issue these bonds to bolster their core capital base and meet the capital requirements set by the Basel III norms.
Statement 2: As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.
This statement is also correct. The Reserve Bank of India (RBI) has mandated that AT-1 bonds can only be issued through electronic platforms, ensuring transparency and efficiency in the issuance process. Additionally, only institutional investors, such as mutual funds, insurance companies, and pension funds, are allowed to subscribe to these bonds. This restriction is in place because AT-1 bonds are complex instruments that require a certain level of financial expertise to understand the risks involved.
Statement 3: As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.
This statement is incorrect. As per RBI guidelines, banks have the discretion to skip paying interest on AT-1 bonds if their capital ratios fall below a certain threshold level. This feature is known as the "principal loss absorption mechanism," which allows banks to preserve capital in times of financial stress. When the capital ratios of a bank fall below the prescribed level, interest payments on AT-1 bonds can be deferred or written-off, providing a cushion to absorb losses and protect the bank's solvency.
In conclusion, statement 1 and statement 2 are correct regarding AT-1 bonds. However, statement 3 is incorrect as banks have the option to skip paying interest on these bonds if their capital ratios fall below a certain threshold level.
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Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer?
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Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer?.
Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer?.
Solutions for Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC.
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Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer?, a detailed solution for Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? has been provided alongside types of Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice Consider the following statements regarding AT-1 bonds.1. AT-1 bonds are unsecured, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms.2. As per the latest norms, banks can issue these bonds only on electronic platforms, and only institutional investors could subscribe to them.3. As per RBI guidelines, Banks cannot skip paying interest on these bonds even if their capital ratios fall below a certain threshold level.Which of the above statements is/are correct?a) 1 and 2 onlyb) 1 and 3 onlyc) 2 and 3 onlyd) 1 onlyCorrect answer is option 'A'. Can you explain this answer? tests, examples and also practice UPSC tests.
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