What are AT1 Bonds?

Additional Tier 1 Bonds, or AT1 Bonds, as these financial products are popularly known as, are a type of perpetual debt instruments that banks use to raise to increase their core capital base. These bonds are perpetual in nature—that simply means these do not carry a maturity date like trasitional bonds. While AT1 Bonds are a lucrative investment option for investors (as they offer higher returns compared with other comparable instruments), these carry high risk. If the capital ratios of an issuer falls below a certain percentage or in the event of an institutional failure, rules allow the issuer to stop paying interest or even write down these bonds. That's what happened with the Yes Bank episode.