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Perpetual bonds draw attention from regulators

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Regulators have raised issues over the rating of banks Additional Tier-1 bonds and the state-run non-banking finance companies such as Power Finance Corp. backed by sovereign.

Regulators have said there are too many assumptions behind rating of these bonds which may not be right, two people familiar with the matter said.

Additional Tier 1 bonds issued by banks are being rated by some rating agencies as plain bonds when they are not,” said a person familiar with the matter.

Additional Tier 1 or perpetual bonds are quasi debt instruments, which do not have any fixed maturity period. It bears higher risk compared with normal bonds.

Under the Basel-III requirement, an international capital standard, perpetual bonds are more of a quasi-equity obligation. If an issuing bank incurs losses in a financial year, it cannot make coupon payment to its bondholders even if it has enough cash.

The Reserve Bank of India and the Securities & Exchange Board of India are holding discussions on the issue, said an executive with the direct knowledge of the matter.

“But, any such announcement in changes in rules is unlikely to come now as the Election

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