SEBI amends valuation norms on AT-1 bonds after FinMin push

One week after the Finance Ministry intervened within the matter, the Securities and Exchange Board of India (SEBI) on Monday amended valuation rule of perpetual bonds. The round issued by Sebi stated that the deemed residual maturity of Basel III extra tier-1 (AT-1) bonds might be 10 years till 31 March, 2022.

“Further, if the issuer does not exercise call option for any ISIN then the valuation and calculation of Macaulay Duration shall be done considering maturity of 100 years from the date of issuance for AT-1 Bonds and Contractual Maturity for Tier 2 bonds, for all ISINs of the issuer,” the round added.

The round talked about that the interval might be elevated to twenty and 30 years over the following six-months. From April 2023 onwards, the residual maturity of AT-1 bonds will grow to be 100 years from the date of issuance of the bond.

The Sebi round stated, “Based on the illustration of the Mutual Fund Industry to think about a glide path for implementation of the policyand request of different stakeholders, it has been determined that the deemed residual maturity for the aim of valuation of current in addition to new bonds issued underneath Basel III framework shall be as beneath:

Earlier, the Department of Financial Services had famous that the Sebi order on valuation norms could cause volatility in NAVs of debt funds. It additionally stated that there could be disruption within the debt markets as mutual funds promote such bonds in anticipation of redemptions. The letter additionally stated that the brand new rule can have an effect on capital elevating by PSU banks forcing them to rely extra on the federal government for capital.
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