RBI made a proposal to write-down Additional Tier-1 (AT-1) bonds

Reserve Bank of India (RBI) 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. AT-1 bonds are like any other bonds issued by banks and companies, but pay a slightly higher rate of interest compared to other bonds.

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These bonds are also listed and traded on the exchanges. So, if an AT-1 bondholder needs money, he can sell it in the secondary market. Investors cannot return these bonds to the issuing bank and get the money. i.e there is no put option available to its holders. However, the issuing banks have the option to recall AT-1 bonds issued by them (termed call options that allow banks to redeem them after 5 or 10 years). Banks issuing AT-1 bonds can skip interest payouts for a particular year or even reduce the bonds’ face value.