Can AT1 bonds be written off?

Since these bonds can be written down by banks under the directions of the Reserve Bank of India (RBI) in the event of an institutional failure, they are seen as high-risk instruments. If the bank reaches the point of non-viability, AT1 bonds are the first part of debt that will be written down.

What is write down of AT1 bonds?

In AT1 bonds, bondholders have agreed beforehand that they can be written down to zero in case the bank has to be rescued. And that’s why they’re getting nothing. This has happened in Europe earlier.

What happened to Yes Bank AT1 bonds?

The case relates to YES Bank’s restructuring scheme announced in March 2020, which allowed the bank to extinguish its outstanding Rs 8,415 crore AT1 bonds. The write down was based on Basel III norms, which allowed banks to extinguish these instruments in an emergency.

Are Yes Bank bonds safe?

Sebi further observed that Yes Bank represented AT1 bonds as Super FD and ‘as safe as FD’. Also, no confirmation was taken from investors with respect to their understanding of the features and risks associated with the bond, the investigation observed.

What is the difference between AT1 and AT2 bonds?

Tier 1 capital is the primary funding source of the bank. Tier 1 capital consists of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.

Why do banks issue AT1?

Additional Tier 1 bonds, or AT1s for short, are part of a family of bank capital securities known as Contingent Convertibles or ‘Cocos’. They are bonds issued by banks that contribute to the total level of capital they are required to hold by regulators.

Who can subscribe AT1 bonds?

In the secondary market, all investors, including non-QIBs, are eligible and the lot size shall be minimum of Rs 1 crore. The implication for existing AT1 perps, outstanding as on 12 October 2020, is that all investors are eligible, including individuals, and there is no stipulation of a minimum trading lot size.

What are Yes Bank AT1 bonds?

AT-1 Bond are a type of perpetual bonds banks use to raise funds. Following this, investors moved Courts alleging that they were sold these bonds by the bank on false assurances and hence the investors need to be compensated by the bank.

What happened to Yes Bank perpetual bonds?

When Yes Bank collapsed in early March last year and RBI wrote off the entire value (Rs8,415 crore) of the AT-1 bonds as a part of the hurriedly-put-together rescue package for the cash-strapped lender, all investors lost their money. These bonds are unsecured, perpetual in nature and so pay a higher coupon rate.

What happened to Yes Bank perpetual bond?

What is a Tier 2 bond?

Tier 2 bonds are components of tier 2 capital, primarily for banks. These are debt instruments like loans, more than they are equity features like stocks. Tier 2 bonds are typically subordinated debt, behind tier one debt such as commercial loans.

What is AT1 capital?

Additional Tier 1 capital is defined as instruments that are not common equity but are eligible for inclusion in this tier. An example of AT1 capital is a contingent convertible or hybrid security, which has a perpetual term and can be converted into equity when a trigger event occurs.

How did Yes Bank’s stock move in one week?

Stock score of Yes Bank Ltd moved up by 2 in a week on a 10-point scale. “Accordingly, the AT1 instruments will be fully converted or written-down permanently before amalgamation or reconstitution,” the cash-strapped lender said.

What is Yes Bank’s net loss for December quarter?

YES Bank late on Saturday reported a loss of Rs 18,564 crores for the December quarter against a profit of Rs 1,000 crore a year ago. ’s additional tier 1 (AT1) bonds worth Rs 8,415 crore have been written down to zero, the company informed stock exchanges.

What happens to AT1 instruments when a bank is reconstituted?

The lender said that as per rules if authorities decide to reconstitute or amalgamate a bank with any other, then such a bank is deemed as non-viable, and a conversion or write-down of AT1 instruments is then activated. Did you Know? Stock score of Yes Bank Ltd moved up by 2 in a week on a 10-point scale.