RBI Al­lows Banks to Ser­vice AT1 Bonds from Re­serves

The Economic Times - - Markets: Beating Volatility -

Mum­bai: The Re­serve Bank of In­dia has stepped in to pre­vent loss­mak­ing banks from de­fault­ing on bonds that were raised to boost their cap­i­tal ad­e­quacy ra­tio- the min­i­mum cap­i­tal that banks keep as a cush­ion against de­faults on loans. “A num­ber of com­mer­cials banks would have de­faulted on in­ter­est pay­ment had the RBI not al­lowed them to dip into statu­tory re­serves to pay in­ter­est on AT1 bonds,” said Ashutosh Kha­juria, ex­ec­u­tive di­rec­tor and CFO of Fed­eral Bank. AT1bonds are ad­di­tional tier 1 bonds which is a com­bi­na­tion of debt and equity and in­ter­est on th­ese bonds are paid pro­vided banks have ad­e­quate profit to ser­vice them. On late Thurs­day even­ing, RBI per­mit­ted banks to use statu­tory re­serves for the pay­ment of in­ter­est on AT1 bonds if free re­serves are not suf­fi­cient. As on date, 14 banks have Rs 22,600 crore of AT1 bonds out­stand­ing.—Our Bureau

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