Centre may ease AT-I bond valuation rules

The move aims to make the bonds more attractive to investors

- Subhash Narayan

Banks may soon find it easier to raise capital from the domestic market, as the government is considering relaxing the valuation rules for additional tier-I, or AT-I, bonds to make them more attractive to investors.

In 2021, the Securities and Exchange Board of India (Sebi) changed the rules of AT-I bonds, which are bonds without a fixed maturity date or perpetuals, to be considered as having a maturity of 100 years beginning April 2023, starting from their sale date. However, assigning a 100-year maturity to the bonds would diminish their appeal as a favoured option for banks to raise tier-I capital, as investors would demand higher coupon rates.

To ensure that AT-I bonds remain a viable fundraising option, the department of financial services has started discussions on easing valuation norms, as there is a broad understanding in favour of aligning the valuation of the perpetual bonds with global practices, instead of treating them as having a 100-year maturity, according to two people aware of the development, requesting anonymity.

The Fixed Income Money Market and Derivatives Association of India may also be asked to offer inputs on new valuation norms, in line with global practices, for AT-I bonds.