Prelims: Current events of national and international importance | Economy
Why in News?
Recently, SBI raised funds via its first Basel III‑compliant AT1 bonds, diversifying sources and securing long‑term non‑equity regulatory capital to support growth strategy.
- Basel III compliant AT1 (Additional Tier 1) bonds – They are special debt instruments issued by banks, perpetual and unsecured (not backed by collateral).
- Banks use them to meet strict capital adequacy rules set by regulators, ensuring financial stability.
Basel III
- It is a regulatory framework followed on a voluntary basis on a global scale.
- The framework deals with capital adequacy in banks, stress testing, and market liquidity risk.
AT1 Bonds
- Qualify as core equity capital under Basel‑III norms.
- Purpose – Helps banks meet global capital adequacy requirements.
- Loss Absorbency – Can be written off or converted into equity during stress, subject to RBI approval.
- Perpetual Tenor – They have no maturity date and continue forever unless the bank chooses to redeem them.
- Call Option – Banks may buy back or redeem them after 5–10 years, but are not obliged to.
- Higher Yield – They pay more interest than normal bonds or deposits because they carry higher risk.
Key Features of SBI Basel III‑compliant AT1 bonds
- Tenor – Perpetual bonds with call option after 5 years and each anniversary thereafter.
- Rating – AA+ (Stable) by CRISIL & CARE Ratings.
CRISIL Ratings and CARE Ratings, registered with SEBI, are major agencies that assess the creditworthiness of corporate and financial debt issuers.
Reference
The Hindu | AT-1 Bonds
