The 2020 Yes Bank catastrophe has lowered mutual funds (MFs) urge for meals for AT-1 bonds. Once among the many many best patrons of AT-1 bonds, MFs are literally practically a fifth of what it earlier was, Economic Times 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 Exchange Board of India (Sebi) capped mutual fund investments in debt gadgets, notably near AT1 (Additional Tier-1) bonds. Accordingly, no mutual fund scheme might be allowed to invest larger than 10% of its debt property in such bonds and fewer than 5% throughout the bonds of a single issuer
What are AT-1 bonds?
AT-1 bonds, additionally referred to as Additional Tier 1 bonds, are a type of debt instrument that banks downside to satisfy their capital requirements beneath Basel III legal guidelines. These bonds have no maturity date and are perpetual. They shall be known as or redeemed by the issuer at their discretion.
AT-1 bonds are riskier
However, they’re thought-about to be high-risk gadgets because of they absorb losses throughout the event of a monetary establishment’s financial distress, and should even be written off or remodeled into equity if certain set off events occur. This makes them riskier than totally different sorts of debt gadgets, resembling senior bonds or deposits, which can be typically shielded from write-downs.
The AT-1 bonds of India’s Yes Bank have been written down in March 2020 after the Reserve Bank of India initiated a restructuring of the lender with some value attributed to the monetary establishment’s equity.
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Updated: 30 May 2023, 08:52 AM IST
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