What are AT1 Bonds: 5 things to know

1.AT1 are Additional Tier 1 bonds that banks issue to maintain strong balance sheets. Tier 1 capital refers to equity and other forms of permanent capital.
2.AT1 bonds are perpetual and have no maturity date, but banks have the option to call and redeem the amount every five or 10 years.
3.AT1 bonds carry a higher interest rate than other bonds.
4.AT1 Abonds involve high risks. The interest payouts can be skipped, bonds’ face value can be cut or the RBI can ask the bank to cancel its outstanding AT1 bonds if the bank is under stress and needs a rescue.
5.AT1 bonds behave like debt, giving high returns in good times. In bad times, they behave like equity, where the capital is at risk.


Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.