Yes Bank AT1 bonds are written off. For the retail customers who were sold these bonds as ‘FD’ like product but only better, it’s been a very short journey from understanding the risks to realising it
On 6th March, RBI put the bank under moratorium and it’s AT1 bonds became worthless
Retail investors were sitting pretty with these bonds because they were sold as risk free instruments that gave better rates compared to FDs. But soon the realisation dawned when the value was written off. This may well be the time when many were made aware of nomenclature
But these bonds carry risks. First risk: bank pays coupon only if it has profits or reserves. Second risk: in case of a resolution they are not superior to equities and the bond holders have already agreed to the write-down. But RMs wouldn’t know that would they?
Now the offer document of these bonds state that they are not meant for resident individual investors. In other words most of the bond holders were sold these bonds in the secondary market. A person who was missold these bonds realised he had bought these bonds from Indiabulls
These bonds are categorised as quasi equity products and at least two financial regulators (Irdai and PFRDA) places them under equity and alternate asset class. Yet they were sold by the bank as debt product with zero risk!!!
Investors were not made aware of the risk and even as the offer document states that these bonds are not meant for retail, the retail managed to get its hands on it through the secondary market. Sorry they didn’t manage but they were made to buy these bonds.
What should happen. Market should move to seller beware model: suitability and disclosures need to be worked upon 2) regulators need to talk to each other: how is one financial product categorised as debt , equity and alternate asset class by three financial regulators? Cont....
3) Unified financial sector regulations as proposed by FSLRC should be worked upon. Urgently! 4) TAT of grievance redressal bodies needs to improve. 5) As suggested by @deepakshenoy institutional exchanges that limits retail participation should be worked upon
Ultimately, retail investors shouldn’t have to suffer if they are missold. Accountability needs to be fixed.
