{"id":21010,"date":"2024-02-28T08:21:15","date_gmt":"2024-02-28T02:51:15","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=21010"},"modified":"2025-04-06T09:10:54","modified_gmt":"2025-04-06T03:40:54","slug":"at-1-bonds","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/at-1-bonds\/","title":{"rendered":"What are Additional Tier-1 (AT-1) Bonds?"},"content":{"rendered":"<h2>About Additional Tier-1 (AT-1) Bonds<\/h2>\n<ul>\n<li>AT-1 bonds are\u00a0perpetual bonds with\u00a0no maturity date.<\/li>\n<li>Investors in these bonds\u00a0do not get their principal back.\u00a0<\/li>\n<li>However, the\u00a0interest continues forever. AT-1 bonds have a\u00a0higher interest\u00a0rate than other bonds.<\/li>\n<li>Due to the perpetual nature of AT-1 bonds, these are often\u00a0treated and viewed as equity, not debt.\u00a0<\/li>\n<li>How are AT-1 Bonds Issued?\n<ul>\n<li>AT-1 bonds are\u00a0issued by banks in accordance with the\u00a0directions of the Reserve Bank of India (RBI).<\/li>\n<li>Financial institutions usually\u00a0issue such bonds to fulfil their\u00a0capital adequacy requirements (CAR).<\/li>\n<li>CAR is an\u00a0assessment of a bank\u2019s capital and its risk-weighted assets.<\/li>\n<li>Capital adequacy norms were\u00a0formulated under the Basel III accord of 2009 after the credit crisis of 2008.\u00a0<\/li>\n<li>The\u00a0money raised\u00a0through these bonds is\u00a0kept aside as a shock absorber by the bank.<\/li>\n<\/ul>\n<\/li>\n<li>These bonds are\u00a0contingent convertible bonds (CoCos), a type of\u00a0debt instrument that the\u00a0bank can convert into equity\u00a0if its capital levels fall below the specified levels. This helps the bank\u00a0reduce debt while managing capital.\u00a0<\/li>\n<li>AT-1 bonds\u00a0have a call option, which allows\u00a0the banks to buy back the bonds\u00a0from the investors.<\/li>\n<li>These bonds provide\u00a0high returns but also\u00a0carry greater risk.\u00a0\n<ul>\n<li>If the banking institution fails, these\u00a0bonds are at risk.\u00a0<\/li>\n<li>Suppose the RBI finds a bank in an\u00a0unstable condition, under pressure, and in a situation where it demands rescue. In that case, it\u00a0can ask the bank to immediately\u00a0withdraw their AT-1 Bonds\u00a0without seeking permission\u00a0from the investors, therefore making\u00a0AT-1 Bonds risky.\u00a0<\/li>\n<li>Further, the\u00a0issuer can also skip the interest payout if it is under financial stress.<\/li>\n<\/ul>\n<\/li>\n<li>Investors cannot return their bonds to the bank as there is\u00a0no put option against these bonds. However, these\u00a0bonds are listed on the stock exchanges, so the\u00a0investor can liquidate these\u00a0whenever in need.<\/li>\n<li>Subordinate debt:\u00a0In case of default, these\u00a0bonds rank lower than the other debt, which is why these are subordinate debts.<\/li>\n<\/ul>\n<hr \/>\n<h3>Q1) What is a Bond?<\/h3>\n<p>A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental) for a set period of time in return for regular interest payments. The time from when the bond is issued to when the borrower has agreed to pay the loan back is called its \u2018term to maturity\u2019. The bond issuer uses the money raised from bonds to undertake various activities, such as funding expansion projects, refinancing existing debt, undertaking welfare activities, etc.\u00a0<\/p>\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.financialexpress.com\/market\/sbi-junks-plans-to-raise-rs-12k-cr-via-at-1-bonds-3407219\/\" target=\"_blank\" rel=\"nofollow noopener\"><u>SBI junks plans to raise Rs 12k cr via AT-1 bonds<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>AT-1 bonds are perpetual bonds with no maturity date.<\/p>\n","protected":false},"author":5,"featured_media":21011,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-21010","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-prelims-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/21010","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=21010"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/21010\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/21011"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=21010"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=21010"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=21010"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}