AT-1 Bonds Valuation: NFRA Recommends Review Every 3 Years
Jul 31, 2024 19:44
The National Financial Reporting Authority (NFRA) recommends reviewing the valuation methodology for AT-1 bonds every three years to reflect market practices.
Illustration: Uttam Ghosh/Rediff.com
New Delhi, Jul 31 (PTI) The National Financial Reporting Authority (NFRA) has suggested that the valuation methodology for the AT-1 bonds, which are issued by banks to raise funds, need to be revisited at least every three years to consider changes in tune with market practices.
Banks are permitted to issue AT-1 bonds which are perpetual debt instruments with loss absorption features and carry a higher coupon rate on account of associated risks. They are considered an important source of quasi-equity capital for banks globally and the investors in these bonds include mutual funds, corporates and other institutional investors.
The authority has prepared a report on the valuation methodology for AT-1 bonds following a reference from the government.
In January this year, Ministry of Corporate Affairs referred to NFRA a proposal of Department of Economic Affairs (DEA) for deliberation and recommendation on the methodology for valuation of AT-1 bonds.
"Since Ind AS 113 emphasises valuation based on market practice, our recommendations too are based on the current market behaviour. Market behaviour, however, is dynamic. Hypothetically, it may happen that market practice becomes such that most AT-1 bonds are not called by the issuers.
"The market in that case may value these bonds at YTM (Yield To Maturity) or yield to worst. Therefore, it will be necessary to monitor market practice and see whether there is any change over time. It is therefore recommended that at least once in three years, the valuation methodology may be revisited to consider for the changes in market practice, if any," the report said.
NFRA considered the valuation methodology for the bonds in sync with Indian Accounting Standard 113 (Ind AS 113). The theme underpinning the fair value measurement in Ind AS 113 is a market-based measurement considering the traded/quoted prices, data and information observed from the markets and the assumptions and practices of market participants.
The fair value principles of Ind AS require determination of valuation assumptions or approaches generally used by the market participants.
In March 2021, markets regulator Sebi had issued a circular that stipulated prudential investment limits for mutual funds for AT-1 bonds. Among others, it was stipulated that the maturity of all perpetual bonds to be treated as 100 years from the date of issuance of the bond for the purpose of valuation.
Against this backdrop, NFRA has prepared the report on the valuation methodology.
Home »
Market News » AT-1 Bonds Valuation: NFRA Recommends Review Every 3 Years
DISCLAIMER - This article is from a syndicated feed. The original source is responsible for accuracy, views & content ownership. Views expressed may not reflect those of rediff.com India Limited.
You May Like To Read
MORE NEWS
IREDA to Raise Rs 5,000 Cr via QIP for Green...
IREDA's board approves a plan to raise up to Rs 5,000 crore through QIP to support the...
CCPA Investigates Ola, Uber for Differential...
India's Consumer Protection Authority (CCPA) is investigating ride-hailing services Ola...
Amazon Web Services to Invest Rs 60,000 Cr in...
Amazon Web Services (AWS) will invest Rs 60,000 crore to expand its data center...
Adani Infra to Acquire Majority Stake in PSP...
Adani Infra, led by Gautam Adani, seeks CCI approval to acquire a majority stake in PSP...
Crude Oil Futures Fall on Weak Global Demand
Crude oil futures declined on the Multi Commodity Exchange (MCX) due to weak global...
Budget 2026: Barclays Urges Tax Cuts for...
Barclays recommends a personal income tax cut in India's FY26 budget to stimulate...
Coforge Q3 Profit Up 10.3% to Rs 268 Cr |...
Coforge's adjusted PAT surged 10.3% to Rs 268 crore in Q3, driven by strong revenue...
Paras Defence to Invest Rs 12,000 Cr in India's...
Paras Defence will invest Rs 12,000 crore to build India's first optics park in...
Ayushmann Khurrana: FICCI Frames Brand...
Bollywood star Ayushmann Khurrana has been appointed as the brand ambassador for FICCI...
India Employers Face Talent Shortage in Q1...
A new survey reveals Indian employers are anticipating cautious hiring in Q1 2025 due...
Read More »