AT-1 BOND

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■ AT-1 BOND :-- Recently, the Reserve Bank of India has made a proposal to write-down Additional Tier-1 (AT-1) bonds as part of the SBI-LED restructuring package for Yes Bank.

● AT-1 bonds are a type of unsecured, perpetual bonds that banks issue to shore up their core capital base to meet the Basel-III norms.
● They are a type of unsecured, perpetual bonds. • No maturity date.
● Higher rate of interest than other secured bonds and fixed deposits.
● The issuing bank has the option to call back the bonds or repay the principal after a specified period of time.
● They are listed and traded on the exchanges.

 ■ RISK ASSOCIATED WITH AT-1 BONDS?
The issuing bank has the discretion to skip interest payment. The bank has to maintain a Common equity tier I ratio of 5.5%, failing which the bonds can get written down.

 ■ WHO ARE MOST AFFECTED?
•Mainly the investors are the Institutional investors such as Mutual funds.
•But there are also individuals whose money in fixed deposits was converted into the AT1 bonds with the promise of a higher return.
•Many senior citizens also fell for the promise.

 ● so  affluent people  are willing to take on higher risk of a capital loss for higher yields.

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