You are here: Home » Opinion » Editorial » Editorials
Business Standard

Valuing AT1 bonds

A sudden change in the metrics will be disruptive

Perpetual bonds | at1 bonds | Additional Tier 1 bond

Business Standard Editorial Comment  |  New Delhi 

The concern over the market regulator’s guidelines on valuing perpetual bonds, such as additional tier-1 securities issued by banks, as 100-year bonds has its roots in the crisis, and the Reserve Bank of India’s (RBI’s) action in that case. Investors lost heavily when the bank, prompted by the RBI, wrote off worth Rs 8,400 crore, thereby putting them in a higher-risk category than even equities. The Securities and Exchange Board of India (Sebi) has rightly identified a serious problem with the valuation of these complex instruments and its suggestion will bring in more transparency to the process. The blame for the mess must go to rating agencies and that tended to value as five-year bonds. This was patently wrong practice because it gave the former higher value than they deserved. The valuation was based on the bonds’ call dates — the date at which the issuer could make an offer to call back the bonds and pay off the investors. It was not incumbent on the bank issuing them to do so, but these bonds were valued as if it were. In any case, are supposed to be without a put option; so it is not clear on what basis rating agencies treated them as five-year bonds.



What you get on Business Standard Premium?

  • icon Unlock 30+ premium stories daily hand-picked by our editors, across devices on browser and app.
  • icon Full access to our intuitive epaper - clip, save, share articles from any device; newspaper archives from 2006.
  • icon Curated newsletters on markets, personal finance, policy & politics, start-ups, technology, and more.
  • icon Pick your 5 favourite companies, get a daily email with all news updates on them.
  • icon 26 years of website archives.
  • icon Preferential invites to Business Standard events.


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, March 16 2021. 22:42 IST