You are here: Home » Markets » News
Business Standard

Sebi shields small investors from AT1 bonds, urges 'full discretion'

Banks issue such instruments to augment their capital base, but regulator says small investors may not understand them fully.

Topics
Sebi | Investors | retail investor

Samie Modak  |  Mumbai 

Sebi
Sebi said retail investors might not fully understand the risk associated with these instruments.

The Securities and Exchange Board of India (Sebi) on Tuesday took steps to restrict participation in additional tier 1 (AT1) bonds — instruments which were in the amid troubles at private sector lender YES Bank.

In a circular, the regulator said issuing AT1 bonds must be done compulsorily on the electronic book provider platform. More importantly, issuers and stock exchanges have to ensure that only qualified institutional buyers are issued these bonds. Further, the minimum allotment and trading lot size shall be Rs 1 crore.

AT1 bonds are also known as perpetual non-cumulative preference shares, innovative perpetual debt instruments, and perpetual debt instruments. Typically, these are issued by banks to augment their capital base.

said retail might not understand the risks associated with these instruments.

“Given the nature and contingency impact of these AT1 instruments and the fact that the full import of the discretion is available to an issuer, this may not be understood in the truest form by retail individual investors,” said in a circular.

In March, several were caught off guard after the Reserve Bank of India (RBI) proposed writing down AT1 bonds issued by the troubled YES Bank, forcing bondholders to take a 100-per cent haircut and leading to losses of over Rs 10,000 crore.

“These instruments have certain unique features which, inter alia, grant the issuer (i.e., banks, in consultation with the RBI) discretion in terms of writing down the principal and interest, to skip interest payments, to make an early recall, etc without a commensurate right for to legal recourse, even if such actions of the issuer might result in potential loss to investors,” had said.

Sebi has also tightened various disclosure requirements for issuers of such bonds.

chart

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, October 06 2020. 21:40 IST
RECOMMENDED FOR YOU
.