Capital-seeking public sector banks have increasingly sought issuing additional tier-I (AT1) bonds to raise capital. Also known as perpetual bonds, these allow banks to raise capital in compliance with Basel III norms. Unlike regular bonds, they don’t have a maturity date and the issuing bank can either repay the principal after a pre-determined date or continue paying interest forever.
These bonds have a higher yield than regular bonds because of the higher perceived risk: the issuing bank has the prerogative to skip coupon payment. With some public sector banks reeling under losses, there were concerns on coupon repayment.
