RBI amends AT-1 bonds framework on coupon payments

The Reserve Bank today amended regulations governing AT-1 bonds under the Basel-III framework, wherein it allowed lenders to pay coupons from profits and reserves.
"Coupons must be paid out of 'distributable items'. In this context, coupon may be paid out of current year profits," it said in a notification, amending para 1.8(e) of Annex 4 of the July 1, 2015 Master Circular on Basel-III.
The amendments are applicable with immediate effect, it said.
The apex bank said if current year profits are not sufficient, coupon may be paid subject to availability of profits brought forward from previous years and reserves.

The accumulated losses and deferred revenue expenditure, if any, shall be netted off from the two to arrive at the available balances for payment of coupon, it added.
The bank can make appropriation from the statutory reserves only if the aggregate of profits in the current year, profits brought forward from the previous years and permissible reserves excluding statutory reserves, net of accumulated losses and deferred revenue expenditure are less than the amount of coupon, as per the notification.
Payment of coupons on perpetual debt instruments from the reserves is subject to the issuing bank meeting minimum regulatory requirements for CET1, Tier 1 and Total Capital ratios, it clarified.

RBI also asked banks to ensure and indicate in their offer documents that they have full discretion at all times to cancel distributions/payments.