The 2020 Sure Financial institution disaster has diminished mutual funds (MFs) urge for food for AT-1 bonds. As soon as among the many largest consumers of AT-1 bonds, MFs are actually nearly a fifth of what it earlier was, Financial Instances reported.
“MF investments in AT-1 bonds crashed to ₹5,382 crore in April 2023, from ₹25,057 crore in January 2020,” ET reported.
Earlier, the Securities and Trade Board of India (Sebi) capped mutual fund investments in debt devices, particularly just about AT1 (Extra Tier-1) bonds. Accordingly, no mutual fund scheme can be allowed to take a position greater than 10% of its debt belongings in such bonds and no more than 5% within the bonds of a single issuer
What are AT-1 bonds?
AT-1 bonds, also called Extra Tier 1 bonds, are a sort of debt instrument that banks problem to satisfy their capital necessities underneath Basel III laws. These bonds haven’t any maturity date and are perpetual. They are often known as or redeemed by the issuer at their discretion.
AT-1 bonds are riskier
Nevertheless, they’re thought of to be high-risk devices as a result of they take up losses within the occasion of a financial institution’s monetary misery, and might even be written off or transformed into fairness if sure set off occasions happen. This makes them riskier than different forms of debt devices, equivalent to senior bonds or deposits, that are often shielded from write-downs.
The AT-1 bonds of India’s Sure Financial institution had been written down in March 2020 after the Reserve Financial institution of India initiated a restructuring of the lender with some worth attributed to the financial institution’s fairness.
Up to date: 30 Might 2023, 08:52 AM IST