New NABARD Grade A : How to prepare ESI for Prelims & Mains- Sources & Strategy
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Question

Which among the following are perpetual instruments with a contingent conversion feature in case of crisis?

A Core Equity capital Correct Answer Incorrect Answer
B Corporate debentures Correct Answer Incorrect Answer
C Subordinated debt Correct Answer Incorrect Answer
D AT 1 Bonds Correct Answer Incorrect Answer
E Hybrid debt Correct Answer Incorrect Answer

Solution

AT1 (Additional Tier 1) bond, also known as perpetual bond or contingent convertible bond, is a type of debt instrument that is issued by banks to meet the capital requirement set by the Basel III regulatory framework. AT1 bonds have features of both equity and debt instruments. They pay a fixed coupon rate like traditional bonds, but they also have a contingent conversion feature that allows them to be converted into common equity in case the bank's capital falls below a certain threshold.

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