Economics

The decision of the Securities and Exchange Board of Asian country (Sebi) to slap restrictions on open-end fund (MF) investments in extra tier-1 (AT1) bonds has raised a storm within the MF and banking sectors.

·       AT-1 bonds ar a sort of unsecured, perpetual bonds that banks issue to support their core capital base to satisfy the Basel-III norms.

·       There ar 2 routes through that these bonds may be acquired:

·       Initial personal placement offers of AT-1 bonds by banks seeking to boost cash.

·       Secondary market buys of already-traded AT-1 bonds.

·       AT-1 bonds ar like several alternative bonds issued by banks and corporations, however pay a rather higher rate of interest compared to alternative bonds.

·       These bonds also are listed and listed on the exchanges. So, if associate degree AT-1 investor desires cash, he will sell it within the secondary market.

·       Investors cannot come these bonds to the issue bank and obtain the cash. i.e. theres no place possibility on the market to its holders.

·       However, the issue banks have the choice to recall AT-1 bonds issued by them (termed decision choices that permit banks to redeem them once five or ten years).

·       Banks issue AT-1 bonds will skip interest payouts for a selected year or perhaps cut back the bonds’ face price.

AT-1 bonds ar regulated by run batted in. If the run batted in feels that a bank desires a rescue, it will merely raise the bank to write down off its outstanding AT-1 bonds while not consulting its investors.