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With reference to the AT1 Bonds, consider the following statements:
1. AT1 Bonds stand for additional tier-1 bonds.
2. These are secured bonds which have a maturity date.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
With reference to the AT1 Bonds, consider the following statements:1. ...
The Securities and Exchange Board of India (Sebi) has slapped restrictions on mutual fund (MF) investments in additional tier-1 (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.
- 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.
Reason for SEBI action
- According to the Sebi, these instruments could be riskier than other debt instruments.
- The Sebi has probably made this decision after the Reserve Bank of India (RBI) allowed a write-off of Rs 8,400 crore on AT1 bonds issued by Yes Bank Ltd after it was rescued by State Bank of India (SBI).
Hence only statement 1 is correct.
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With reference to the AT1 Bonds, consider the following statements:1. AT1 Bonds stand for additional tier-1 bonds.2. These are secured bonds which have a maturity date.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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