AT1 bonds ecosystem remains quite robust, says RBI governor

Even as the fate of his decision to fully write off Rs 8,300 crore of outstanding additional tier 1 (AT1) bonds of Yes Bank as part of its rescue is pending before the apex court, RBI Governor Shaktikanta Das on Thursday defended the debt instrument as a globally legitimate one. "The AT1 bonds ecosystem remains quite robust, quite stable. And it is a part of the Basel III regulations and we have adopted that in our country as well. And there is nothing more really I'd like to say on this," Das told reporters at the customary post-policy presser

"When banks sell such bonds, the terms and conditions are given out clearly and investors, who are mostly ultra-high networth individuals, are expected to read the terms and conditions."

When Yes Bank was on the verge of collapse in early March 2020, the RBI as part of its rescue asked a consortium of nine banks led by SBI to take over the bank, led by Rana Kapoor. One key condition of the rescue was fully writing off the AT1 bonds issued by the private sector lender worth about Rs 8,300 crore in outstanding.

However, the RBI move was challenged by a group of investors in the Bombay High Court, which last month set aside the RBI ruling. Following this, the bank and RBI approached the Supreme Court, which is yet to hear the plea.

The main investors in these bonds include Nippon Mutual Funds, Barclays, Kotak Mutual Funds, Franklin Templeton, 63 Moons, Indiabulls Housing Finance, and Reliance Industries along with retail investors.

In a similar manner, when the second largest Swiss bank Credit Suisse was rescued by its larger rival UBS in government and central bank-driven USD3.2 billion merger deal last month, the Swiss National Bank also wrote off its USd16 billion worth of AT1 bonds.

AT1 bonds gained prominence after the 2008 global financial crisis when banks bereft of capital were allowed to raise money by selling these bonds, which subordinate securities.

On the rupee, Das said at the Bengaluru leg of the G20 meeting RBI showcased various aspects of our digital payments including the CBDC, which got a lot of interest.

"In fact, an eminent person from the international financial sector, went to the extent of complementing the design of our CBDC saying the only thing he missed in the e-rupee is the smell of a new currency note."