Consider the following statements with reference to the Additional Tier 1 (AT1) bond:
1. These are regulated by the Reserve Bank of India.
2. These bonds do not have a set maturity date.
3. Holders of these bonds have no “put option” available.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 3 only
(d) 1, 2 and 3
Explanation Statement 1 is correct: AT1 bonds are issued by banks as part of their regulatory capital to meet Basel III norms.The Reserve Bank of India (RBI) regulates the issuance and features of these bonds under its Master Circular on Basel III Capital Regulations.
Statement 2 is correct: AT1 bonds are perpetual in nature, meaning they do not have a fixed maturity date. The issuing bank may choose to call back (redeem) the bonds after a minimum of 5 years, but is under no obligation to do so.
Statement 3 is correct: A put option allows the bondholder to force the issuer to repurchase the bond before maturity. AT1 bonds do not come with a put option, the investor cannot demand early redemption. Only the issuer (bank) may call the bond, after regulatory approval.
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