Market regulator Securities and Exchange Board of India (SEBI) on Tuesday tightened the norms and has made it mandatory for banks to issue Additional Tier-1 bonds on the ‘Electronic Book Provider’ platform irrespective of issue size.
In a circular, the markets regulator said issuing AT1 bonds must be done compulsorily on the electronic book provider platform. More importantly, issuers and stock exchanges have to ensure that only qualified institutional buyers are issued these bonds. Further, the minimum allotment and trading lot size shall be Rs 1 crore.
The changes will come into effect from October 12.
“The issuance of AT1 instruments shall be done mandatorily on the Electronic Book Provider (EBP) platform irrespective of the issue size,” it said.
AT1 bonds are also known as perpetual non-cumulative preference shares, innovative perpetual debt instruments, and perpetual debt instruments. Typically, these are issued by banks to augment their capital base.
Sebi said retail investors might not understand the risks associated with these instruments.
“Given the nature and contingency impact of these AT1 instruments and the fact that the full import of the discretion is available to an issuer, this may not be understood in the truest form by retail individual investors,” Sebi said in a circular.
In March, several investors were caught off guard after the Reserve Bank of India (RBI) proposed writing down AT1 bonds issued by the troubled YES Bank, forcing bondholders to take a 100-per cent haircut and leading to losses of over Rs 10,000 crore.