Additional tier-1 bond stand-off likely to spook corporate bond yields

Besides redemption pressure in debt market, it will make fund raising difficult for PSBs

The RBI set the cat among the pigeons when it decided to write down YES Bank’s additional tier-1 (AT-1) bonds.

Issues such as value impairment and mis-selling came to light, and Sebi has, since then, been working on improving regulations.

AT-1 bonds are bond instruments issued by banks that are perpetual and cannot be redeemed. They come with a call option that banks usually exercise after 5 years.

On Wednesday, Sebi issued a directive to MFs that AT-1 bonds have to be valued assuming a 100-year maturity, against valuing them on the callable period, as done now.

Further, MFs should not invest more than