InvestorQ : What are additional Tier-I bonds, and is it worth buying?
Isha Tharwani made post

What are additional Tier-I bonds, and is it worth buying?

Answer
image
ananya Sing answered.
1 year ago
Follow
These are a type of perpetual unsecured bonds that are issued by the banks to shore up their core capital base to comply with the Basel-III norms. This new rule was formed by the central government considering the global financial crisis. This helped banks to maintain strong balance sheets.
 
AT-1 bonds have several unique features that make these bonds stand out from other plain-vanilla bonds. 
These are Perpetual bonds and hence carry no maturity date. Rather, these bonds have call options, so banks can redeem them after five or ten years. Banks can skip interest payouts for a particular year or even reduce the bonds’ face value if their capital ratios fall below a certain limit as specified in their offer terms. 

The biggest drawback is that when RBI feels that a bank is shaking and needs a rescue, it can just ask the bank to cancel its outstanding AT-1 bonds without even consulting with its investors. So, I believe these bonds are most suitable for institutions and smart investors who can assess whether or not their higher returns compensate for their higher risk. These bonds carry a face value of Rs 10 lakh per bond and are hence most suitable for HNI investors.

I recommend that this bond is not much feasible just because it provides high returns. You should look for other factors as well, and especially risk factor, which is extremely high in this bond. There are other better investment options that provide high returns and contains moderate risk.
15 Views