InvestorQ : Why have retail investors been barred from investing in AT1 bonds issued by banks?
Anu Biswas made post

Why have retail investors been barred from investing in AT1 bonds issued by banks?

image
Ria Jain answered.
2 weeks ago
Follow

When Yes Bank repudiated AT1 bonds worth Rs.8450 crore in March, there was a lot of hue and cry by the debenture trustees. However, that is the nature of the bonds and any such furore was never going to hold water. But the key issue was about mis-selling to unsuspecting investors.

It may be recollected that AT1 bonds or perpetual bonds are permitted by RBI so banks could raise tier-1 capital without diluting equity. But AT1 bonds had a catch in that they can be repudiated by the bank in the event of a crisis. That is what SBI did with Yes Bank bonds.

To address the problem of mis-selling to unsuspecting retail investors, SEBI ha now increased the minimum ticket size for AT1 bonds to Rs.1 crore investment. This should keep most small and medium sized investors out of the fray.

In addition, SEBI has stipulated that AT1 bonds will allowed for subscription only to qualified institution buyers or QIBs and not for retail investors. While the structure and risk of AT1 bonds remain the same, this at least protects the small investors from the risks.

2 Views