SEBI Amendment

An amended circular issued by SEBI provides that the retirement period of additional tier-1 (AT-1) bonds as 100 years. Despite updated valuation norms issued by the Securities and Exchange Board of India, public sector banks (PSBs) said they might not be able to collect new capital by perpetual bonds any longer (Sebi). According to bankers, the debt instrument is almost “gone,” so market traders would see it as a 100-year paper, which goes against the instrument’s fundamental essence of infinity. Sebi had previously released an updated circular that established a glide path for considering additional tier-1 (AT-1) bonds’ maturity as 100 years.

‘Instrument almost dead’: PSBs may not be able to raise fresh capital via AT-1 bonds

The market regulator released a revised circular on perpetual bond valuation norms a week after the DFS wrote to Sebi. According to Sebi’s amended circular, the maturity of perpetual bonds will be ten years until March 31, 2022, after which it will be raised to 20 and 30 years within the next six months. Perpetual bonds will have a maturity of 100 years from the date of issuance beginning in April 2023.

According to another senior banker, the effect of perpetual bonds on the primary and secondary markets will be entirely different. “Whoever has a risk appetite to keep such bonds in their portfolio will have an ability to pick up these permanent bonds in the secondary market,” he added.

Though banks, NBFCs, and corporations all issue AT-1 bonds, public sector lenders are the perpetual bonds’ primary issuers. According to ICRA figures, the overall stock of AT-I bonds outstanding as of February 28, 2021, was Rs 1.03 lakh crore, with public sector banks issuing 70% of them.

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