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SEBI to remove the 100-year maturity rule on perpetual bonds, advises Finance Minister

The finance minister is not in favor to support the new regulation of the 100-year maturity rule on perpetual bonds.

In the need to satisfy the capital requirements the bank issues Perpetual bonds also know as tier-1 (AT-1).

The ministry started to SEBI Chairman Ajay Tyagi that the clause on valuation is disorderly in nature.

Mutual Fund holds the majority of investment in the perpetual bond worth Rs 35,000 Crore of AT-1 bond issuances with an outstanding amount of Rs 90,000 crore.

The memorandum issued by the Department of Financial Services (DFS) to the chairman of SEBI directing to withdrew the rule treating AT1 bonds (perpetual), as having 100-year maturity SEBI made the circular on March 10, 2021, which had to be in effect o from April 1.

Mutual Fund was in an unfavorable state in regards to the circular that revaluation may lead to huge losses to them.

The finance minister has given a brief to Mutual funds after they expressed their issue that they have adequate funds even with a 10 percent ceiling.

This may have an impact on the corporate bond market as Mutual funds get the direction to generate liquidity by selling bonds. This may increase the cost of borrowings for corporate.

The PSU may bear its effect as they have to rely more on the government for capital.

Perpetual bonds have no fixed maturity date and the bank can redeem them on particular dates. These are the due dates for the mutual funds.

The remarkable change of 100 years of maturity may result in notable losses to the investors. These are slightly difficult to sell as they are comparatively low liquidity bonds

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