RBI Provides requirements on foreign AT1 Bonds

1. New Regulatory Directions

• Publication date: 21 March 2012.
• Document: Basel III capital regulations - PDI in AT1 capital - the eligible limit of foreign currency / rupes denominated bond overseas directions, 2025.
• Effective Date: October 1, 2025.
• Legal Power: It is issued under Section 35A of the Banking Regulation Act, 1949.

2. Significant Modification: Reduced Qualified Limit.

• What: Perpetual Debt Instruments (PDIs), or AT1 bonds, raised in foreign currency or in rupee denominated bonds abroad.
• New Rule: The instruments can now be included in a bank as a part of its Additional Tier 1 (AT1) capital to a maximum of 1.5 percent of the banks Risk Weighted Assets (RWAs).
• Basis: The RWAs should be determined using the recently audited or constrained review financial statements.

Explainer: What are AT1 Bonds?

• Purpose: AT1 (Additional Tier 1) Bonds are perpetual instruments that banks issue to enhance their core capital (Tier 1) according to Basel III standards to serve as a buffer to absorb losses.

Key Features:

• Perpetual: These ones do not have a maturity date.
• Loss-Absorbing: They may be included on the books, or alternatively turned into equity in case the bank capital declines to a specified threshold, and will safeguard the bank against bankruptcy.
• High Risk, High Return: They are higher risk thus come with higher interest rates compared to regular bonds.
• Investor Base: They are also focused on High Net Worth individuals (HNIs) and institutional investors with a minimum capital requirement of Rs10 lakh and above.