New Enroll in RBI Grade B New Batch - Starts on May 21

    Question

    Till December 2021, Indian banks had raised more than

    Rs 37,000 crore by issuing new AT1 bonds in financial year FY22. AT1 Bonds are also commonly known as _________
    A Compulsorily Convertible bonds Correct Answer Incorrect Answer
    B Optionally convertible bonds Correct Answer Incorrect Answer
    C Perpetual Bonds Correct Answer Incorrect Answer
    D Non-redeemable bonds Correct Answer Incorrect Answer
    E Tier II Bonds Correct Answer Incorrect Answer

    Solution

    AT1 bonds or additional tier 1 bonds are perpetual bonds as these do not have any maturity date. These are allowed as part of the Tier I capital for Banks under Basel III guidelines to the extent of 1.5% These bonds are riskier than other normal bonds because of the following features: ·       The issuing bank has the discretion to skip coupon payment. Under normal circumstances it can pay from profits or revenue reserves; however in case losses for the period, the coupon payment can be skipped. ·       The bank has to maintain a common equity tier I ratio of 5.5%, failing which the bonds can get written down or converted into equity.

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