What are AT1 bonds?

India’s largest lender State Bank of India (SBI) announced on September 3, 2021 that it has raised Rs 4,000 crore through additional Tier 1 (AT1) bonds.

Key Points

  • AT1 bonds were raised at a coupon rate of 7.72%.
  • It the first such issuance in domestic market after the Securities and Exchange Board of India (SEBI) notified new rules.
  • SBI has AAA credit rating from local credit agencies while the AT1 offering is rated AA+. This is the highest rating in India for such instruments.
  • SBI was also the first lender to raise capital through offshore AT1 bonds in 2016.
  • The latest issuance by SBI has encouraged other lenders such as Axis Bank to look after the offshore AT1 bond issue in order to raise about $1 billion.

Axis Bank Bond

Axis Bank will use these proceeds for green and social projects. It has set an initial price guidance of 4.4% for the bonds. Axis Bank became the second Indian lender in 2021 to tap overseas debt markets to raise funds using AT1 bonds. HDFC Bank also raised $1 billion, recently.

SEBI Rule

SEBI amended the 100-year valuation rule for perpetual bonds, in March 2021. As per new rules, deemed residual maturity period of Basel III AT-1 bonds will be 10 years until March 31, 2022. This period will be increased to 20 and 30 years in subsequent six-month period. According to new rule, from April 2023, residual maturity of AT-1 bonds will become 100 years from the date of issuance of these bonds.

What are AT1 bonds?

AT1 bonds are also called perpetual bonds. They carry no maturity date but are having a call option. The issuer of these bonds may call or redeem the bonds in case it is getting money at a cheaper rate, especially when interest rates are decreasing.

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