![]() ![]() At the instance of the RBI, bonds can also be written down upon a point of non-viability (PONV) event happening. ![]() The principal loss absorption (through write-down or conversion into equity shares) can be triggered by pre-specified trigger of CET1 falling below 5.5 per cent before March 2019 and 6.125 per cent thereafter. The RBI writing down such bank bonds, in quick succession this year, has not only left investors in the lurch but also raised questions over the true assessment of risk and pricing of these bonds.īut what are these bonds? Why have investors been caught unawares if the ‘loss absorbency’ clause is clearly laid down in the regulations and term sheet of these bonds? Principal-loss absorption riskīasel-III-compliant AT 1 bonds come with a built-in ‘loss absorbency’ clause which means that in case of stress, banks can write off such investments or convert them into equity. After the RBI moved to write down YES Bank’s ₹8,400 crore Additional Tier 1 (AT1) bonds in the beginning of the year, it has now advised the writing down of Tier 2 bonds of Lakshmi Vilas Bank (LVB) amounting to ₹318.2 crore, before its merger with DBS Bank India (on November 27).Ī full-write down implies that investors in these bonds will not receive anything, just as equity shareholders in LVB. Indian banks that made a mad dash to raise capital through Basel III compliant bonds in recent years, could face challenges in tapping this route in the near term. ![]()
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